report home utility furnishing products

INVESTMENT POTENTIAL STUDY INDIAN HOME UTILITY & FURNISHING INDUSTRY

Prepared By:

,February 2009

IMRB International

January 1, 2008

Prepared For:

PrefaceThai-Indian business relations have improved considerably over the past decade. Thailand and India are close to concluding a Free Trade Agreement (FTA) covering trade in goods by 2010. The Free Trade Agreement between Thailand and India is expected to improve trade relations between the two countries further. The FTA covering trade in goods would lead to long term mutual benefits in trade and investment and the partnership would be expanded further to cover technology knowledge and expertise India's primary imports from Thailand are machinery, electronic appliances, textiles, plastic material, transport equipment, vegetable oil and latex. The major items of imports under FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners and Aluminum products. Thailands main imports from India are jewelry, gemstones, steel, pharmaceuticals and ferrous metal ores. India's trade with Thailand could touch USD 7 billion by 2010-11 propelled by a doubling in transaction under Free Trade Agreement (FTA). The EHS was implemented on September 1, 2004, under which tariffs on 82 items were to be phased out by September 1, 2006 by both the sides. The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 from US $ 2.2 billion in 2005-06. The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increased by over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in 2003-04. The share of these 82 items in India-Thailand trade increased from 10.34 percent in 2003-04 to 15.68 percent in 2005-06. Thailands export to India of the identified 82 EHS items was increased from US $ 84.64 million to US $ 275 million during the period from 2003 04 to 2005 06. During the same time, Indias export to Thailand of these items increased from US $ 64.28 million to US $ 83.03 million during the same period.

INVESTMENT POTENTIAL IN INDIAN HOME UTILITY & FURNISHING INDUSTRY

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In 2007, Thailands export for these 82 items was US $ 406.31 million. Due the FTA between two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007 in bilateral trade between Thailand and India. With significant potential for growth of business between the two countries, the Ministry of Commerce, Thailand and Royal Thai Embassy would like to understand the investment potential across the following identified product categories:1. Home Utility and Furnishing: This would broadly include three product categories:a. Furniture Largely focusing on house hold furniture e.g. Sofa-set, Dining table, Corner / corner table etc. Also covering office furniture e.g. office chairs, cubicles, tables etc and open-air furniture i.e. the furniture used in the garden, near pools etc b. Interior Decoration items This would include Showpieces, Wooden handicraft, photo frames, and artificial flowers. c. Utensils Household (kitchen), HoReCa (Hotel Restaurant Catering) Segment, Institutional / Office d. Plastic Products - Food containers, plastic storage boxes etc e.g. Cello, Tupperware, Milton, Nyasa etc 2. Construction Material: This would include Bathroom Fittings, Tiles/Floorings (including wooden), Roof Tiles (used in the costal areas), Metal (Al, Tin etc) / Gypsum boards used for partition 3. Hospitality Services: This would be understood with the objective of tie-up with existing hotels spas, specialty restaurant (e.g. Thai cuisine restaurant), health wellness services etc. The client would be interested in management control and running the property. The stand-alone spas e.g. Kaya clinic is also covered in the purview of the study. 4. Auto parts and accessories: It would cover both types of auto parts:-


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a. Essential auto parts (low volume high value items e.g. gear box, clutch plates etc and high volume low value items like break pads etc). These parts would be for 2-wheelers (e.g. moulding etc) and 4-wheelers both cars and commercial vehicles. b. Accessories / decorative items e.g. music systems, alloy wheels etc In order to understand the trade potential across the above categories, the Ministry of Commerce, Thailand and Royal Thai Embassy has commissioned Business and Industrial Research Division (BIRD) of IMRB International to avail its research based consultancy services. Report for each of the above-mentioned product categories shall be submitted separately in four different modules. This report is for Home utility and furnishing segment that includes Furniture, Interior Decoration items, Utensils and Plastic Products. Given the similarity and overlap in couple of these product categories, this report is divided and presented in two parts as follows: 1. Module 1 Home Furnishing (Furniture & Interior Decoration) 2. Module 2 Home Utility (Utensils and Plastic Products)


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TABLE OF CONTENTS MODULE 1 Furniture & Decorative Items Industry of India Executive Summary ...............................................................................................11E.1. India a preferred destination for International Business ..................................................... 11 E.2. Furniture Industry in India..................................................................................................... 11 E.3. Indian Dcor and Handicrafts Industry ................................................................................. 12 E.4. Understanding the Value Chain of Furnishing Industry........................................................ 13 E.4.1. Furniture Industry Value Chain .................................................................................. 13 E.4.2. Dcor and Handicrafts Industry Value Chain ............................................................. 13 E.5. Industry Analysis ................................................................................................................... 14 E.5.1. Furniture Industry Analysis......................................................................................... 14 E.5.2. SWOT Analysis of Dcor and Handicrafts Industry................................................... 14 E.6. Consumer Insights ................................................................................................................. 15 E.7. Recommendations for Thai Investors .................................................................................... 16

1. Global Furniture and Handicrafts & Dcor Industry ...................................181.1. Global Furniture Industry ...................................................................................................... 18 1.1.1. Overview: .................................................................................................................... 18 1.1.2. The main furniture exporting countries ....................................................................... 20 1.2. Global Crafts and Decorative Industry .................................................................................. 21 1.2.1. Overview ..................................................................................................................... 21 1.2.2. Major Importing Nations ............................................................................................. 21 1.2.3. Major Exporting Nations ............................................................................................. 22 1.2.4. Segmentation Exporting Nations .............................................................................. 23

2. INDIA Important Trends in Indian Economy .............................................24 3. Furniture and Handicrafts & Dcor Industry in India..................................273.1. Furniture Industry .................................................................................................................. 27 3.1.1. Overview: .................................................................................................................... 27


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3.1.2. Industry Segmentation ................................................................................................. 27 3.1.3. Industry Growth Trends and Forecasts ........................................................................ 29 3.1.4. Key Demand Drivers of the Furniture Industry........................................................... 30 3.2. Indian Handicrafts and Decorative Industry .......................................................................... 31 3.2.1. Overview ..................................................................................................................... 31 3.2.2. Classification / Segmentation of the Industry: ............................................................ 32 3.2.3. Handicrafts Clusters in India ....................................................................................... 33 3.2.4. Challenges in the Indian Handicrafts and Dcor Industry ........................................... 34

4. Understanding the Value Chain .......................................................................354.1. Furniture Industry Value Chain ............................................................................................. 35 4.1.1. Imports ......................................................................................................................... 35 4.1.2. Domestically Manufactured Furniture......................................................................... 37 4.1.3. Distribution Structure .................................................................................................. 38 4.1.4. Furniture Industry and Organized Retailing ................................................................ 41 4.2. Handicrafts & Dcor Products Value Chain .......................................................................... 43

5. Industry Analysis ...............................................................................................455.1. Indian Furniture Industry Analysis Five Forces Model ...................................................... 45 5.1.1. Bargaining power of Suppliers .................................................................................... 46 5.1.2. Bargaining power of Customers .................................................................................. 46 5.1.3. Competitive Rivalry .................................................................................................... 47 5.1.4. Threat of Substitutes .................................................................................................... 47 5.1.5. Threat of New Entrants................................................................................................ 48 5.2. Indian Handicrafts & Dcor Industry SWOT Analysis ...................................................... 50

6. Consumer Insights .............................................................................................526.1. Respondents Profile ............................................................................................................... 52 6.2. Purchase Decision Process An Introduction ....................................................................... 53 6.2.1. Problem Recognition / Need Awareness Stage ........................................................... 54 6.2.2. Information Search ...................................................................................................... 55 6.2.3. Evaluation of Alternatives ........................................................................................... 57 6.2.4. Purchase Decision........................................................................................................ 60


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6.2.5 Post-Purchase Evaluation ............................................................................................. 62 6.3. Customers Perceptions about Thailand ................................................................................ 64

7. Recommendations for Thai Investors ..............................................................657.1. How to Enter the Four Market Segments .............................................................................. 65 7.1.1. Entry Options ............................................................................................................... 66 7.1.2. Distribution .................................................................................................................. 68 7.1.3. Brand Building & Promotion ...................................................................................... 69 7.2. Market Attractiveness ............................................................................................................ 70

8. Annexure .............................................................................................................718.1. Annexure A: Profile of Major Players in the organized sector of Indian Furniture Industry 71 8.1.1. Style Spa ...................................................................................................................... 71 8.1.2. Godrej Interio .............................................................................................................. 72 8.1.3. Durian .......................................................................................................................... 73 8.2. Wooden Handicrafts Industry Overview ............................................................................ 75 8.2.1. Role of Wooden Handicrafts Industry in Indian Economy ......................................... 75 8.2.2. Factors That Affect Growth ......................................................................................... 76

Executive Summary ...............................................................................................78E.1. Tableware Industry in India................................................................................................... 78 E.2. Plastic Container Industry in India ........................................................................................ 79 E.3. Value Chain Tableware & Plastic Container Industry ....................................................... 80 E.3.1. Value Chain for Manufacturers ................................................................................ 80 E.3.2. Value Chain for Importers ....................................................................................... 81 E.4. Industry Analysis ................................................................................................................... 81 E.4.1. Tableware Industry...................................................................................................... 81 E.4.2. Plastic Container Industry ........................................................................................... 82 E.5. Consumer Insights ................................................................................................................. 82 E.6. Market Attractiveness of Tableware & Plastic Container Industry....................................... 83 E.7. Recommendations ................................................................................................................. 84


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9. Global Scenario ..................................................................................................869.1 Global Tableware Industry: .................................................................................................... 86 9.1.1 Overview: ..................................................................................................................... 86 9.1.2 The Changing Consumers ............................................................................................ 86 9.2. Global Plastic Products Industry............................................................................................ 88 9.2.1. Plastic Industry ............................................................................................................ 88 9.2.2 Plastic containers .......................................................................................................... 88

10. Tableware & Plastic storage containers Industry in India ..........................8910.1. Tableware Industry .............................................................................................................. 89 10.1.2. Industry Segmentation ............................................................................................... 89 10.1.3. Customer classification.............................................................................................. 92 10.1.4. Major manufacturers in India .................................................................................... 93 10.1.5. Growth Drivers for Tableware Industry .................................................................... 93 10.1.6. Analysis of Tableware Industry in India ................................................................... 96 10.1.7. Critical Success Factors for Tableware Industry ....................................................... 98 10.2. Plastic Containers Industry in India ..................................................................................... 99 10.2.1 Overview .................................................................................................................... 99 10.2.2 Industry Segmentation .............................................................................................. 101 10.2.3. Customer classification............................................................................................ 102 10.2.4. Major manufacturers in India .................................................................................. 102 10.2.5. Growth Drivers for Plastic storage containers Industry .......................................... 103 10.2.6. Analysis of Plastic storage containers market in India ............................................ 103 10.2.6. Analysis of Plastic storage containers market in India ............................................ 104 10.2.7. Strengths and the weaknesses of the industry ......................................................... 106 10.2.8. Critical Success Factors for Plastic storage containers ........................................... 107

11. Imports structure in Indian Tableware & Plastic containers market ......10811.1. Overview ............................................................................................................................ 108 11.2 Current Import Duty Structure ............................................................................................ 108 11.3. Major brands being imported in Indian tableware market ................................................. 108 11.4. Major brands being imported in Indian Plastic containers market .................................... 109


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11.5. Channel Structure for Importers ........................................................................................ 109

12. Understanding the Value Chain ...................................................................11112.1. Value Chain of Tableware Industry ................................................................................... 111 12.1.1.Case study for Tableware: Value chain of La Opala RG Ltd. .................................. 111 12.2. Value Chain of Plastic Containers Industry ....................................................................... 112 12.2.1. Case study for Plastic containers: Value chain of Cello Thermoware Ltd. ............. 113

13. Consumer Insights .........................................................................................11513.1. Overview ............................................................................................................................ 115 13.2. Customer Purchase process................................................................................................ 115

14. Conclusion ......................................................................................................12114.1. Market Attractiveness ........................................................................................................ 121

15. Recommendations ..........................................................................................12215.1. Entry Strategy .................................................................................................................... 122 15.2. Positioning of Tableware & Plastic storage containers ..................................................... 123 15.3. Target Product Categories.................................................................................................. 123 15.4. Target Customers ............................................................................................................... 124 15.5. Distribution ........................................................................................................................ 124 15.6. Brand building & Promotion ............................................................................................. 125 15.7. Value Chain ....................................................................................................................... 125

16. Annexure .........................................................................................................12616.1. Profile of major players in tableware category .................................................................. 126 16.1.1 La Opala ................................................................................................................... 126 16.1.2 Yera .......................................................................................................................... 127 16.1.3. Bharat Pottery Ltd. .................................................................................................. 128 16.1.4. Art d inox ............................................................................................................... 129 16.1.5. Magppie ................................................................................................................... 130


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16.2. Profile of major players in Plastic storage container category .......................................... 130 16.2.1 Cello.......................................................................................................................... 130 16.2.2. Tupperware .............................................................................................................. 131 16.2.3. Hamilton .................................................................................................................. 132 16.3. Import Legislation in India ................................................................................................ 134 16.3.1. Principal Law & Import Export Policy.................................................................... 134 16.3.2. Mode of Pricing and INCO TERMS ....................................................................... 134 16.3.3. Customs Duty .......................................................................................................... 135

17. References .......................................................................................................137


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MODULE 1 - INVESTMENT POTENTIAL STUDY FURNITURE AND DECORATIVE ITEMS INDUSTRY OF INDIA


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Executive SummaryE.1. India a preferred destination for International BusinessIndia has undergone tremendous economicRising consumption

development in last few decades. Considering the fast growing and barely tapped middle class market, India has now become one of the mostRising income Multiplier effect GDP growth Rising production

favored 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.

E.2. Furniture Industry in IndiaThe Indian furniture industry is fragmented in nature with many small players. In terms of value, this industry is worth INR 350 billion (2007-08) 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. Industry Segmentation The furniture industry can be segmented into the following three categories:1. Household segment The size of the overall real estate industry in India is estimated to be around US$ 12 billion (Source: FICCI). This figure is growing at 30% for the last few years. Almost 80% of real estate developed in India is residential space and the rest comprise ofOffice, 20% Contract, 15%

Industry SegmentsHousehold, 65%


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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. 2. Office segment 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. 3. Contract segment 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 Markets 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. The 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 factors, growth in the organized retail industry, real estate growth, increasing affluence of Indian consumers and growth in hospitality and tourism industry of India have significant influence on the industry demand.

E.3. Indian Dcor and Handicrafts IndustryThe handicraft industry employs seventy million people in India. The industry production is estimated to be worth INR 210 billion (2007-08), out of which a significant proportion (close to INR 90 billion) is exported. The Indian handicrafts industry, which has a status of cottage industry, has grown at a promising rate of 15 to 20 percent in the last few years. The few important features of Indian handicraft and decorative industry are low capital investment, cheap and skilled labor, diversified product portfolio, high ratio of value addition, high potential for export and foreign exchange earnings and flexible production. However, lack


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of infrastructure & technological support, lack of awareness of international and new trends and poor promotional campaigns are a few drawbacks that need to be addressed.

E.4. Understanding the Value Chain of Furnishing IndustryE.4.1. Furniture Industry Value Chain The value chain of the Indian furniture industry can be divided under two broad categories imported furniture and domestically manufactured furniture. The channel flow across these two categories is summarized in respective charts below.Franchisee Manufacturers Imports Own Stores Distributor s Importers Distributor s Franchisee Retailers

Imported Furniture Value Chain

Domestically Manufactured Furniture Value Chain

Raw Material Suppliers

Manufacturers

Own Stores Distributor

Raw Material Imports

s

E.4.2. Dcor and Handicrafts Industry Value Chain The handicraft industry supply chain of India (shown in the adjoining figure) largely consistsImporters / Wholesalers Producers

of importers and wholesalers who supply goods to retailers and small chains. The most popular channel for distribution of the moreSmall Retailers Large Retail Chains Stock in bulk Sell to final consumers or small retailers

Final Point of Sale

traditional, ethnic products of the decorative type is the large Most common channel Carry variety of product categories under one shop

E Retailers In recent times, internet has emerged as a major distribution channel for dcor items handicrafts items


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number of small and independent retail stores.

E.5. Industry AnalysisE.5.1. Furniture Industry Analysis The Porters Five Forces model has been used to analyze the industry. The summary of the analysis is as follows: The furniture industry is fragmented in nature, comprising of many small and unorganized players. In view of this market scenario, customers are not able to experience a wide variety and new range of products. The suppliers are also not in a position to bargain much with the manufacturers due to the domestic availability and easier imports of raw material, Although 90% share of the industry remains with the unorganized sector, industry has witnesses a rapid growth in the organized segment. However, due to growing demand and initial stage of organized sector growth, the internal competitive rivalry is not significant. The industry is vulnerable to new players with factors like increasing demand, comparatively low capital investments and easier imports. To sum up, there is an increasing demand but limited number of dominant players. This provides an attractive opportunity for Thai companies to enter the organized sector of Indian furniture industry. E.5.2. SWOT Analysis of Dcor and Handicrafts Industry The strength factors like low barriers of new entry, abundant and cheap labor to compete on price. low capital investment, variety of products categories provide an advantage to the dcor and handicrafts industry. However, factors like lack of infrastructure and communication facilities; lack of co-ordination between government bodies and private players; inadequate information of new technology; inadequate information of current market trends; less interest of young people in craft industry are some of the industry weaknesses. Comparing the strengths, weaknesses, available opportunities and potential threats and respective impacts of each of these, it can be said that any investor who wants to enter India as an industry player can take great advantage from following factors - low costs, growing demand, low competitive rivalry, ignorance / lack of information availability.


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E.6. Consumer InsightsKey consumer insights, important from the point of view of foreign entrants are as follows: The major reasons identified for home furnishing purchases are related to home remodeling, renovation and new home purchases. Other than these occasions, furniture and decorative products are also purchased during celebrations around Diwali or marriage seasons. The most preferred information sources for furniture purchases are internet, Word of Mouth, print media and exhibitions. In case of interior decoration items, there is no such information search phase. Sometimes, visiting exhibitions become the source of information and point of purchase as well. As expected, it was observed that home furnishing purchase decisions are mainly taken by women in the household. However, in case of furniture it is a joint decision between husband and wife (also influenced by the children in some cases), because of high money outlay involved in it. After sales services / warranty period is an important consideration in the purchase process of furniture goods. The other factors that are considered are aesthetics, quality, purpose and price. It is recommended that a new player who wants to enter in the Indian market is should have multiple point of presence and established brand name in addition to meeting consumers expectations for basic looks and quality. The company can set up its own showrooms across the country, with exclusive product designs and position itself as a brand that will be always there to provide after sales support. . Perception about Thai companies In terms of product design and quality, Indian customers see Thailand as a country with more innovative, attractive and varied designs. There is association of fragility with Thai products in the consumer mindsets, which can have a positive impact for decoration related product categories but can have a negative impact in case of furniture and utensils. In terms of price range, consumers perceive Thailand as a country that will offer most of the products at affordable prices. On a comparative scale, Thai price range will fall somewhere close to China and India.


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E.7. Recommendations for Thai InvestorsThe recommendations for the identified four potential market entry segments can be summarized as follows:-.Market Segments Key Take Out from the Market StudyExpanding Middle class and Upper middle class

Entry StrategyEither through Joint Venture or step by step entry by establishing only a liaison office first

Distribution Route

Target Segment

Critical Success Factors

Household Furniture High End Segment

India is a complex country with cultural variation important to gather information first Middle - middle and Upper middle class ready to pay extra to ensure durability However, considered as a price competitive country, Thailand is seen as a country with a status quotient attached with its products. Perceived as a shopping destination of moderately affluent class of the society Office Space in India is growing rapidly, will grow at 20% CAGR in coming four to five years

Establishing own retail chains Specialty Store/Home Improvement store format

Upper Middle Class

Product Innovation, Exclusive designs, Well Established Brand Name, Better packaging, Customization

Household Furniture Low End Segment

Imports

Tying up with existing Retail Chains Hypermarket Format

Middle Middle Classes

Competitive Prices, Availability, Warehouses in Tier 1 cities, Strong Logistics Network, High Quality, After Sales Support, Timely Delivery, Warehouses and connectivity through strong Logistics Network, Brand Name and After Sales Support

Office Furniture

Institutional Customers look for brand names that can compliment with their own brand name Indian customers are now spending more on Home Furnishing Among Indian customers, Thailand is perceived to be price competitive Thailand Positioned as a country with delicate, attractive and ethnic products in the handicrafts and dcor industry

Joint Venture / Medium Scale Firms

Direct Selling and Marketing Tie ups with Builders and Architects

Service Industry (IT and BFSI Sector) - Mid Size Offices

Handicrafts & Dcor Products

Imports

Buying and Selling Agents, through wholesalers

Middle Class

Large Product Assortment, Large Volumes, Better Packaging, Product Exclusivity, Ethnic / Culture based Positioning


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The market attractiveness analysis of the above-mentioned four segments has been done based on factors like Industry Growth Stage, Growth of Customer Segments, Growth in Allied Sectors, Competitive Scenario, Potential Entry Barriers Scale of Investments required etc. The findings from this analysis can be summarized in the table below:

Market Segment

Market Attractiveness

Main Criteria / Advantages Huge target customer base, advantage in terms of

Household Furniture Low End Segment

volume; Minimum efforts and investments required for

market development (entry through JV and distribution through existing hypermarkets) and promotion; Huge demand but limited supply from organized sector Office Segment of India is in a booming stage,

Office Furniture

growing at a fast pace (20% CAGR), Limited number of sector strong players in the industry,

Handicrafts & Dcor Products

There is no need for macro-investment; Products are

present throughout the low value to high value added band, providing an opportunity to make good margins Increasing Affluence of Indian upper middle class;

Household Furniture High End Segment

Given higher disposable income, customers are ready to pay an extra buck for better quality and designs; No strong industry player in this segment


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1. Global Furniture and Handicrafts & Dcor Industry1.1. Global Furniture Industry1.1.1. Overview: According to the CSILs (Centre for Industrial Studies) World Furniture Outlook 2008 report, world production of furniture is worth about US$ 307 billion. The seven major industrial economies (which are, in order of furniture production, the United States, Italy, Germany, Japan, the United Kingdom, Canada and France) together produce 50% in value of the world total. The furniture production of all developed countries combined covers 65%Other Developed Countries, 15% France, 3%Emerging Countries

World Furniture ProductionOther Emerging Countries, 12% U.S., 21%

India, 3%

Poland, 3% Italy, 8%

China, 18%

Germany, 7% Japan, 4% U.K., 3% Canada, 3%Developed Countries

of the world total. Furniture production in emerging countries currently amounts to 35% of the world total in value. There are two countries, China and Poland, where production is increasing rapidly. The opening of furniture markets over the past Ten Years The most important structuralImports/Consumption Ratio35% 30% 25% 20.2% 20% 15% 10% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 21.6% 22.5% 26.5% 24.3% 24.8% 28.3% 29.7% 30.0% 29.9%

phenomenon of the past decade is the increased degree of openness of the furniture markets, measured as the ratio between This imports increase and is

consumption.

particularly important in the United States, where the trade deficit for

furniture was almost US$ 22 billion in 2006, providing the most important stimulus to world furniture trade. Growth of the imports/consumption ratio has been rapid, reaching 25% in 2001 and almost 30% in 2006. It is now leveling off and it is estimated that in the next few years it will remain at a level of about 30%.


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International trade of furniture has grown faster than furniture production because of the opening of the main furniture markets in the last ten years.

World trade of furniture grew by 7% in 2007 and was equal to US$ 97 billion. It is expected that this figure will grow by 5% in 2008, in which case, it would be equal to US$ 102 billion.World Trade of Furniture (In US$ Billion)120 100 80 60 40 20 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

45

48

52

51

55

65

77

84

91

97

102

A sizeable percentage of international furniture trade is carried out within the economic regions into which the world economy can be divided: In the European Union (15) and Norway and Switzerland about 57% of foreign furniture trade takes place within the same countries In the NAFTA area (US, Canada and Mexico) about 33% of foreign furniture trade is within the three countries In the Asia and Pacific countries, more than 40% of total foreign furniture trade is within the region. On balance, trade within regions amounts to about 47% of total world furniture trade. Therefore, only one-half of world furniture trade can be considered "global" in the sense that it takes place between countries in geographically distant regions. The most important of these flows are: From the emerging countries of Asia to the United States (67% of outgoing flows from this area) and to Europe From Europe to the United States, mostly from Italy From the new EU members to Western Europe, especially to Germany


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1.1.2. The main furniture exporting countries The main furniture exporting countries are China, Italy, Germany, Poland and Canada. The evolution of exports by the main exporting countries between 1997 and 2007 was as follows:

The relative positions of the main exporting countries have changed considerably between 1997 and 2007. China moves to the first position becoming the leading exporter, Italy moves from first to second and Poland from eighth to fourth. About 52% of exports come from developed countries; however, the share of developed countries decreased by 23% to the advantage of some emerging countries: From 1997 to 2006 China's share increased from 4% to 19%. Other major furniture exporting emerging countries are Poland, Vietnam and Malaysia. Percentage breakdown by geographic area in 1997 and in 2006 was also studied. Several interesting changes that emerged from this study are as follows: The European Union lost about 15 percentage points The new EU members gained about 6 percentage points The Asia and Pacific area gained 13 percentage points

The surge of imports into the United States was accompanied by an increase in exports from China, Canada and Mexico. The U.S. are number one furniture importing country on a world scale, with imports growing from US$ 8.6 billion in 1997 to US$ 25.3 billion in 2007 (preliminary) in current dollars.INVESTMENT POTENTIAL IN INDIAN HOME UTILITY & FURNISHING INDUSTRY

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1.2. Global Crafts and Decorative Industry1.2.1. Overview Driven by positive changes in major markets like USA and Europe, the world crafts and decorative market has been witnessing a good growth from 2001 onwards. The rising levels of consumer disposable incomes together with the tendency to accessorize and re-style homes with unique articles are the major driving factors for the surge in demand for crafts and decorative products. However, the demand is more for low price products, which are usually machine made. Exporters are at their best in delivering products low price products that match consumer preferences. As a result, the market is becoming highly price competitive in the low and medium value market segments. Currently, the market is more oriented toward fashionable products and hence, prone to impulse purchases, which result in shorter product cycles. Another significant change is the surge in contract manufacturing arrangements between EU and Asian countries like China, Hong Kong and Taiwan. As a result, these countries, which have been doing well on basic factors of production like labor and raw material, are now exposed to sophisticated designing, manufacturing processes, technology, product requirements and standards, and consumer preferences. This has enabled a country like China to leverage its inherent strengths like availability of abundant and quality labor, and raw material, to become the single largest exporter with a market share of about 30% in the total world exports.

1.2.2. Major Importing Nations The top 10 markets, which include countries such as USA, Germany, United Kingdom, Japan, Hong Kong, France, Canada, Belgium and Spain, account for 77.5% of the total world imports of crafts and decorative products. USA is the largest importer accounting for 32.3% of the world imports. Despite the fact that it is a highly competitive market, it continues to remain the most attractive market because of the sheer purchasing power and stability of the market. Increases in population and multi-ethnic composition are other factors that make this market attractive. Germany is the second largest importer and accounts for 8.4% of the total imports followed by UK which accounts for 7.8% of


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the world imports. Hong Kong is also a large importer of crafts and decorative especially from China. However, 85% of these imports are for the purpose of re-exports.

1.2.3. Major Exporting Nations China, Italy, Germany, France, Turkey, USA, India, Hong Kong, Spain and Mexico are the top ten exporters of crafts and decorative products in 2003. China is the largest exporter of craft and decorative products. Chinas ability to supply large volume and wide range of low-cost products has pushed in the forefront of competition.


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1.2.4. Segmentation Exporting Nations The exporting nations can be classified in different leagues based on the value of products they export and the markets they address:

1. High-End Market Segment - Countries like Italy, Germany, France, Turkey, USA, Spain and UK dominate the high-end marketItaly Germany France Turkey USA Spain UK Poland Taiwan Hong Kong Belgium Korea India China China India Thailand Vietnam Malaysia Indonesia

segments, and supply high value crafts and decorative products. These are mostly machine made. These countries occupy leadership positions in categories like ceramics, glassware, leather goods, V O L U M EMiddle Market Segment High End Market Segment

furniture and lighting articles. 2. Middle Market Segment - Eastern European countries like Poland, Belgium, Czech Republic, Hungary and Romania and Asian countries like Hong Kong, Taiwan, Korea are major players in the medium value products. 3. Low End Market Segment - In the low and medium value products, China and India are the two leading competitors

Low End Market Segment

VALUE

among Asian countries. The main factor that distinguishes product from these countries is the level of mechanization. About 90% of products of Chinese origin are completely or partly machine-made, whereas Indian products are mostly handcrafted and exemplify a high degree of craftsmanship. Thailand, Hong Kong, Indonesia, Taiwan, Vietnam, Malaysia and Philippines are the other leading Asian suppliers of low to medium value products. Barring Hong Kong and Taiwan, products categories such as basketwork, furniture, ceramics, toys and dolls, woodwork and some varieties of textile from other Asian countries are mostly handcrafted. Apparently, a large proportion of produce from Hong Kong and Taiwan are machine made. They also re-export product imported from other neighboring Asian countries.


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2. INDIA Important Trends in Indian EconomyMoving 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, India has now become one of the most favored destinations for international businesses to expand. 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.

Important Demographic and Economic Trends 1. Rising India - Recently joined the trillion-dollar GDP club India economy is now fourth largest in the world and is estimated to cross Japan2007 2002-2006 1980-2002 1950-1980 1900-1950 0%

%age Average Annual GDP Growth 9.20% 8% 6% 3.50% 1%2% 4% 6% 8% 10%

between 2012 and 2014 to become the third largest.

2. Tripling Indian Incomes - Given the substantial scope for continued productivity increases in Indian businesses, competitiveness of Indian economy and favorable demographic trends a compounded annual growth rate of 7.3% can be assumed from 2005 to 2025. If the same is achieved, Indian income levels will almost triple in next twenty years. Average real household income will grow from 113,744 INR to 318,896 INR, with a CAGR of 5.3%. This is much faster than income growth in other major markets, with an exception of China. 3. Exploding Middle Class As Indian incomes rise, the shape of the countrys pyramid will also change dramatically. India will create a sizeable and largely urban middle class. The emerging middle class will surge tenfold, exceeding 50080% 60% 40% 20% 0% 8% 1980

Growing Middle Class 500 368 220 6522% 2000 %age Population 32% 2010 2025 Million People 60% 200 0 600 400

million by 2025. It will command 60% of the countrys spending power.INVESTMENT POTENTIAL IN INDIAN HOME UTILITY & FURNISHING INDUSTRY

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4. India to be the worlds fifth largest consumer market by 2025 Given the rapidly increasing household incomes and a robustly growing population will lead to a striking increase in overall consumer spending. The aggregate consumption in India will grow from 17 trillion INR today to 34 trillion by 2015 and INR 70 trillion by 2025. Above-mentioned four factors combined result in a multiplier effect leading to an accelerated economic growth.

Rising consumption Rising income Multiplier effect GDP growth Rising production

5. Young and Home Maker India - With 49% of its population below 24 years of age, India will be defined as a country with self-confident, assertive and risk takers generation.

80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

0.8 1.1 1.6 2.0 2.7 3.6 4.5 5.5 6.2

Total Population: 1.11 Billion% Population 2011

16% between 25 34 years - Target Segment for Home Furnishing market 6.8 7.5 8.5 9.9 10.2 9.9 49% below 24 years 9.5 9.68 10 12

0

2

4

6

As can we also see from the above chart, 16% of its population belongs to an age group of 25 to 34, a generation that is either ready to step or has recently stepped into next stage of their


25

lifecycle Married Life. Considering the needs of this age group that is to make new homes, this segment will be maximally responsible for the Home Furnishing product purchases. Other than the above-mentioned general economic and demographic trends, following variables also have significant impact on Furnishing industry in India: 1. Housing Market set for strong growth a) The size of the overall real estate industry in India is estimated by FICCI, to be around US$ 12 billion. This figure is growing at a pace of 30% for the last few years. Almost 80 % of real estate developed in India, is residential space and the rest comprise office, shopping malls, hotels and hospitals b) India possesses the elements of very strong demand growth on the housing market in the coming decades. By 2030 India will need up to 10 million new housing units per year. Rapid population growth, rising incomes, decreasing household sizes and a housing shortage of currently 20 million units will call for extensive residential construction. 2. Changing Indian Families Some of the recent trends in the Indian households which will have a significant impact on the furnishing industry are: a) Sudden and accelerating growth in number of nuclear families Requirement for setting up new Homes b) More working women Increasing number of double income families Higher disposable income Higher spends across all categories of purchases c) Consumers becoming status / class conscious Higher expenditure on Home Furnishing and Decor products (Wallet share of home furniture and furnishing has already touched 2.7% of the total household expenditures of India)


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3. Furniture and Handicrafts & Dcor Industry in India3.1. Furniture Industry3.1.1. Overview: Size of Indian furniture industry as estimated by the industry experts is approximately worth INR 350 billion. This is divided into two broad categories Unorganized Sector and Organized Sector. According to industry experts, unorganized sector commands the market with a share of around 90% (INR 315 billion). As low as 10% (INR 35 billion) of the Indian furniture industry is the share of organized sector. Dominant players in the organized sector with their respective market shares within the organized sector are listed below (also shown in adjoining chart): 1. Godrej and Boyce 23% 2. Style Spa 5% 3. Durian 3% Remaining 70% share of the organized furniture industry can be attributed to some of the region wise or product segment wise strong players; to name a few Featherlite, V3, Renaissance, Millennium lifestyles, Kian, Tangent, @Home. 3.1.2. Industry Segmentation Application / Customer Segment Wise 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 contractOffice, 20% Contract, 15%

Industry SegmentsHousehold, 65%

segment, accounting for the remaining 15


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percent. Brief description of each of these three segments is provided below. Home furniture (Sixty Five Percent Share) Home furniture in India is available in a wide range, to cater to different customer needs. A typical middle class urban Indian home has five rooms (including kitchen and bathroom). About 25 per cent of the urban populations live in homes with five rooms or more, while 45 per cent live in houses with three rooms or less. About 16 per cent is estimated to live in single-room homes. The type of furniture used depends on the customers affluence and taste. The rich and upper middle class is typically very attentive to design and quality, so price is rarely a determining factor. In general, European style furniture is only found in homes of the urban upper class. Demand for furniture of international standards is limited to the larger cities. It is also estimated that the wealthier classes do not change furniture very frequently; the average life of a piece of furniture is about 20 years and some artisans pieces are used for as long as 50-70 years. Colonial furniture is still very common in India, but the trend seems to be declining slowly. Office Furniture (Twenty Percent Share) The office furniture segment caters to the commercial and office space. This segment has witnessed rapid growth in recent years, in line with the growth in the Indian economy and subsequent demand for office space. The thrust on real estate and office construction is expected to sustain in the near future, indicating continued growth for the furniture industry. Contract segment (Fifteen Percent Share) The contract segment caters primarily to hotels and its growth is consequently linked to growth in tourism and development of new hotels. According to the World Travel Markets 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.


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3.1.3. Industry Growth Trends and Forecasts 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 Indias 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. However, some level of uncertainty has definitely cropped up after the economic recession has hit the globe. In this regard, industry experts have two different viewpoints - Furniture is never seen as an urgent customer need - it is bought only when one wants to renovate or wants to do away with old furniture while shifting to a new place. As such needs can wait, recession might decline the demand. However, more importantly, as recession cannot have significant impact on household demands, furniture market, which is dominated by household furniture, will not be affected much.


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3.1.4. Key Demand Drivers of the Furniture Industry 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:

Real estate growth Increasing demand for residential space, home loans at lower interest rates, growth in office space IT/BPO/ BFSI Changing Consumer Demographics - Rising income levels, Higher Disposable Incomes, Increasing number of double income families Retail Industry Growth Increase in number of organized retail stores, entry of modern retail formats, leading to easier product availability

Key Growth Drivers

Tourism and Hospitality Industry growth Rising number of foreign tourists in India, rapid increase in number of hotels in India

New Affluent Indian Consumer - Buying latest style/designs to keep up with the fashion / trend, significant spends on home dcor due to peer pressure


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3.2. Indian Handicrafts and Decorative Industry3.2.1. Overview As it represents rich culture and tradition of the country, Indian handicrafts and decorative industry has a unique place among all the industries. India is one of the important suppliers of handicrafts to the world market. The Indian handicrafts industry is highly labor-intensive cottage based industry and decentralized, being spread all over the country in rural and urban areas. Numerous artisans are engaged in crafts work on part-time basis. According to one of the study, about 70 million people are engaged in handicrafts sector all over the country and their annual production is around INR 210 billion out of which products worth of about INR 90.3 billion is being exported. Indian Handicraft Industry has the status of cottage industry in India, but it has shown promising growth and evolved as one of the major revenue generator over the years. It has shown continuous growth at the rate of 15-20% over the years and contributes major role for export and foreign earnings. Low capital investment, Cheap and skilled labor, diversified product portfolio, high ratio of value addition, High potential for export and foreign exchange earnings and Flexible Production are few important features of Indian Handicraft and Decorative Industry. However, Lack of Infrastructure & Technological support, Lack of awareness of international and new trends and Poor Promotional campaigns are a few drawbacks of industry, which needs to be overcome. In spite of having diversified products, some part of Indian market are still untapped and market is price sensitive. This gives rise to an opportunity for new entrants to tap some price sensitive customers who cannot afford the highly expensive products made available in the metros and tier 1 cities of the country. Defining Handicrafts: Handicrafts can be defined as products, which are produced either completely by hand or with the help of tools. Mechanical tools may be used as long as the direct manual contribution of the artisan remains the most substantial component of the finished product. Handicrafts are made from raw materials and can be produced in unlimited numbers. Such products can be utilitarian, aesthetic, artistic, creative, culturally attached, decorative, functional, traditional, religiously and socially symbolic and significant.


31

The Cultural and Economic Importance of Handicrafts: The Cultural Importance: Handicrafts play very important role in representing the culture and traditions of any country or region. Handicrafts are a substantial medium to preserve of rich traditional art, heritage and culture, traditional skills and talents that are associated with peoples lifestyle and history. The Economic Importance: Handicrafts are hugely important in terms of economic development. They provide many opportunities for employment even with low capital investments and become a prominent medium for foreign earnings. 3.2.2. Classification / Segmentation of the Industry: Handicrafts and Decorative industry comprises of diversified products portfolio and there is large variety available in market. Products served by this industry can be distinguished as follows: Metal ware Wood ware Hand printed textiles Embroidered and crocheted goods Shawls Carpets Bamboo products Zari goods Imitation jewellery Paintings Earthenware Jute products Marble Sculpture Bronze Sculpture Leather Products Other miscellaneous handicrafts


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3.2.3. Handicrafts Clusters in India Handicrafts industry is widely dispersed across different states of India, each one specializing in one or other type of handicraft activity. The rich craft heritage of India is unique and as diverse as its customs and traditions. Indian handicraft traditions are influenced by the local topography, climate, and socio-religious factors. The following table lists the major clusters for the production of different handicrafts items in India. Although artisans and artisans are found in most parts of the country, only a few states and regional clusters contribute maximum to the exports. These are Gujarat, Rajasthan and Uttar Pradesh. These regions are the major source of exports and have better infrastructure, market development and innovative activity in comparison to the eastern states of the country. Jaipur is a classic example of effective synergies between tourism, craft traditions, private enterprise and strong NGO movement.

Product Category Artmetalware

Regional Clusters Moradabad, Sambhal, Aligarh, Jodhpur, Jaipur, Delhi, Rewari, Thanjavur, Madras, Mandap, Beedar, Kerala & Jagadhari, Jaselmer Saharanpur, Nagina, Hoshiarpor, Srinagar, Amritsar, Jaipur, Jodhpur, Jagdalpur, Bangalore, Mysore, Chennapatna, Madras, Kerala & Behrampur (WB) Amroha, Jodhpur, Jaipur, Farrukhabad, Sagru & Sanganer Kutch (Gujarat), Jaisaimer, Baroda, Lucknow, Jodhpur, Agra, Amritsar, Kullu, Dharmshala / Chamba & Srinagar Agra, Madras, Baster, Jodhpur Kashmir, Jaipur Agra, Madras, Baster, Jodhpur Rajasthan, Madras, Baster Delhi, Moradabad, Sambhal, Jaipur, Kohima (Tribal) lndore, Kolhapur, Shanti Niketan (WB)

Wooden Artwares Hand printed Textiles & Scarves Embroidered goods Marble & Soft Stone Crafts Papier Mache Crafts Terracotta Zari & Zari Goods Imitation Jewellery Artistic Leather Goods


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3.2.4. Challenges in the Indian Handicrafts and Dcor Industry

Lack of economies of scaleOwing to inherent problems of finance, dependence on simpler tools and social issues, the artisans are not in a position to furnish any large-scale orders.

Lack of information on sellersThe importers often find it difficult to access the local artisans directly. Often, identities of true craftsmen are guarded by the middlemen, who do not wish to lose their commissions by enabling direct contacts between the craftsmen and importers.

Scarcity of Raw Material

Challenges Dcor and Handicrafts Industry

There has been a decline in the availability and quality of some of the raw materials used in the production of handicraft goods. The raw materials with acute shortages include cane, silk, scrap and virgin metal.

Lack of information on buyersLocal artisans are mostly illiterate and do not have information about their prospective buyers. This asymmetry of information is often exploited by the intermediaries, who purchase artifacts at low prices and sell them to the buyers at exorbitant rates, thereby pocketing the huge margins.


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4. Understanding the Value Chain4.1. Furniture Industry Value ChainGiven the significant contribution of imports, the entire value chain of the Indian furniture industry can be understood under two broad categories: Imported furniture Domestically manufactured furniture

4.1.1. Imports Trend - Over the 5-year period from 2001 to 2006, furniture imports in India have grown at a CAGR of 64%. This increase can be attributed to factors like increasing demand for furniture, fuelled by the boom in housing and commercial construction. Increasing income levels and influence of global lifestyle trends have also influenced many Indians to move towards imported furniture. The current furniture imports are mainly from China, Malaysia, Italy, Germany, Spain, Korea, Indonesia, Philippines and Japan. China and Malaysia tops this country list by contributing the most to the industry.Furniture Imports in India (in Million USD)152.43 2005-06 2004-05 2003-04 2002-03 2001-02 0.00 32.93 20.93 40.00 58.00 92.79

CAGR = 64%80.00 120.00 160.00

Imported vis--vis domestic - Imported furniture is India is present in all segments Low Price to Premium priced furniture. It can be available at both cheaper and higher prices in comparison to domestic furniture. However, still it is preferred more than the local products because of better finish and use of modern technology and machinery in case of imported products. There is a segment of locally manufactured products, which is of the same quality and better designs, but it


35

is available at significantly higher prices. At the same time, there are also some drawbacks associated with imported goods. Example - the product life is quite short, lack of reliability and responsibility in terms of after sales services. There is a good demand for mass produced imported furniture as they could be purchased off the shelf and, could be used instantly. Whereas in terms of availability, the local product is good in comparison to the imported products. Government does not allow FDI in single brand retailing for imported products in India whereas for the local products there are no such restrictions. Current Import Duty Structure - Wood product imports were liberated in India in 1995. Since then, there has been decline in import duties on wood and wood products. For furniture, the Indian government continues to reduce tariff rates from a peak rate of 300 percent in 1991 down to current rate of 31.70 percent on standard value of goods. Actually, this rate ranges between 31 and 36 percent based on the type of furniture imported. Value Chain for Imported furniture In the current scenario, furniture is being imported by both sectors of the industry Unorganized and Organized. Within the sector, there are two categories of suppliers who are responsible for furniture imports in India, these are 1. Manufacturers Some players are importing furniture along with their own manufacturing set-ups. In case of organized sector, Style Spa and Godrej are good examples. Because, most of the manufacturers in the current scenario have some strength areas or competency in some specific product segments, (for e.g. Style Spas focus is on bedroom furniture) therefore, for rest of the categories, imports are preferred. 2. Importers In addition to the above category, there are market players who are solely into importing and selling furniture in India. This category can also be termed as Traders. The figure below summarizes the entire value chain of imported furniture industry in India.Franchisee Manufacturers Own Stores Distributors Retailers Importers Distributors

Imports


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4.1.2. Domestically Manufactured Furniture Various aspects related to customers (changing lifestyle and preferences), raw material (type, availability & sourcing), capacity to build (production capacity and utilization) and capability to design (availability of professional designers) drive furniture manufacturing industry. These factors combined together are responsible for deciding the actual value of the furniture. The difference between value chain of domestically manufactured furniture from that of imported furniture lies at the first stage. In this case, there is an additional level of stakeholders before manufacturers; these are raw material suppliers. The above stated difference is depicted in the figure below:

Franchisee Raw Material Suppliers Manufacturers Own Stores DistributorsRaw Material Imports

There is a wide variety of raw material used for furniture making in India. The key raw materials include wood, metal and plastic, with bamboo and cane also being used in some cases. Wood accounts for nearly 65 per cent of all furniture made in India. This includes several types of indigenous wood, as well as imported wood.

Raw Material SharePlastic, 10% Metal, 25% Wood, 65%

India imports wood from various South East Asian countries such as Indonesia, Malaysia and Myanmar. It also imports MDF (Medium Density Fiberboard) boards from Europe.INVESTMENT POTENTIAL IN INDIAN HOME UTILITY & FURNISHING INDUSTRY

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Depending upon the type of raw material to be imported, different players have different preferences. For example, Particleboard is preferably imported from Thailand and rubber wood from Malaysia. 4.1.3. Distribution Structure Distribution channel adopted by leading furniture-manufacturing companies in India can be classified into two broad categories: 1. Direct selling through own retail stores 2. Through distributors or franchisees Distribution channel structures of three major players are described below for better understanding. Case 1: Distribution Model of Godrej Interio Brief Profile - Godrej Interio is a unit of Godrej - One of the largest engineering and consumer products company 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. Distribution Channel Structure Godrej Interio has adopted two types of distribution models: 1. Own retail Stores named Lifespaces. Interio owns around 58 stores spread across 25 cities in India. Catering to office as well as home furniture needs, this model of distribution largely sells the latter, thus positioned as Home and Interiors Store. 2. Franchisees named Interio. There are more than 500 franchisees, located in tier 1, 2 and 3 cities of India. In contrast to the above category, these can be multi brand stores. This model sells both office as well as home furniture.

Both the above-mentioned models sell directly to end customers, be it individuals or institutions, no other intermediaries are involved.


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In case of institutional customers, i.e. office furniture Godrej Interio does direct selling. The same is done through either cold calling (whenever there is news of any company or office expanding, presentations are made pro actively to sell) or else by attending to the requests received from the customers directly.

Case 2: Distribution Model Style Spa Limited Brief profile: 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. Distribution Channel Structure Furniture is sold through two routes 1. Style Spa Exclusive Stores These are exclusive stores owned by the company where only style spa products can be sold. There are 90 showrooms of style spa all over India making Style Spa the largest chain of furniture showrooms in India. Out of these 90, 74 stores are companys own stores and remaining 16 are stores owned by exclusive dealers which cannot sell other products or brands. 2. Through Dealers Second model is of selling the furniture through dealers. Although, in this case, furniture is sold under the brand name of Zuari, but these are not exclusive stores, these are multi brand multi product outlets. Indian Furniture Products Limited / Zuari Distributors Dealers In this case, distributors take away the products on cash and carry basis. Then distributors give away the product to the dealers. There are no other intermediaries.


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Case 3: Distribution model of Durian Industries Limited Brief Profile - 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 percent of Durians 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. Distribution Channel Structure Two types of channel 1. Through retail showrooms 43 retail showrooms of Durian are present across India. Out of 43, 30 are owned by Durian. Dealers own remaining 12-13, these dealers are authorized exclusive dealers, and they cannot sell other brands. Material that is imported is stored in warehouses and then distributed to showrooms all across India. By this route, Durian mainly caters to the needs of the individual customers. 2. Project sales This model is mainly to cater to institutional customers. Durian has project offices in all the major cities like Delhi, Hyderabad and Bangalore. Orders are generated in these project offices and their demand is communicated to Mumbai head office. Depending upon the gap of demand and supply (furniture already available in warehouse) import / manufacturing decisions is taken. Some of the material is manufactured; part is imported (depending upon demand of the project).

Durian has a main/central warehouse (2.2 lakhs sqft area) in palgaon (100 Km from Mumbai). There is one more warehouse in Delhi for meeting the demand of 6-7 retail showrooms in Delhi. Orders from different showrooms come to the central warehouse through their ERP system. Then as per the orders, arrangements are made for the logistics and material is finally sent to the destination showrooms.


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4.1.4. Furniture Industry and Organized Retailing India has seen a resurgence of Retail sector. India has grown from the traditional Mom and Pop stores present here and there in the neighborhood catering to the convenience of the consumers. Emergence of shopping centers mainly in urban centers with facilities like car parking and finally growth of modern retail formats like hyper and super markets trying to provide customer with 3 Vs - Value, Variety and Volume is the latest trend. Emergence of organized retail industry has its impact on the Furniture Industry as well. The latter, which is largely dominated by unorganized sector in terms of supply, mostly follows modern formats as far as retailing to end customers is concerned.

The retail formats present in the furniture industry of India can be categorized into following two categories: a) Hypermarkets b) Specialty Stores or Home Improvement Stores

Hypermarkets A hypermarket is a superstore that combines a supermarket and a department store. The result is a very large retail facility, which carries an enormous range of products under one roof. Its product assortment goes beyond routinely purchased goods and includes furniture, large and small appliances, clothing and many items. The basic approach is bulk display and minimum handling by stores personnel, with discounts offered to customers who are willing to carry heavy appliances and furniture out of the stores. In terms of space, such hypermarkets in India are present in the range of 50,000 square feet to 200000 square feet depending on various parameters like store location, demand etc. In this category of retail, space that is allotted to furniture as a category may vary between 15,000 sq ft to 25,000 sq ft. These hypermarkets are typically multi storied, however one product category is restricted to one floor only. Example - Big Bazaar, a unit of PRIL (Pantaloon Retail India Limited) is one such example. Furniture Bazaar is the section of Big Bazaar that focuses on furniture. Through this format, the customer segment that is targeted is the middle class of the country. Furniture Bazaar along with being present as a furniture-dedicated section under Big Bazaar is also present in two otherINVESTMENT POTENTIAL IN INDIAN HOME UTILITY & FURNISHING INDUSTRY

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formats online store and stand-alone stores (in few places). In case of latter, the appropriate term would be specialty stores. This category of stores is explained in the next section.

Specialty Stores / Home Improvement Stores A specialty store can be defined as a retail format that concentrates on a limited number of categories along with some complimentary categories. These kinds of stores provide a high level of service in their focus categories. Since this format has less diverse product range, thus it is comparatively easy to manage the supply chains. Examples of such formats in Indian furniture industry can be Home Town (Pantaloon Retail India Limited), Home Stop (Shoppers Stop), Home Centre (Lifestyle) etc. Considering the fact that these stores not only specialize in furniture as a product category but also focus on other home furnishing and home dcor related categories, these can be termed as home improvement stores as well. The objective with which these stores operate is to provide one stop shop for those who are setting up new homes or those who are renovating their homes. For a detailed understanding of this category, example of Home Town is explained below: Home Town, a unit of PRIL, is divided into three sections exhibitions, markets and services. Home Town has live displays of various rooms such as living room, dining room, bedroom, kids' room, kitchen & bathroom in the exhibitions section. The markets section features products for living market, dining market, bedroom market, kids' room market, kitchen market, bathroom market, Home furnishings, mattresses, e Zone (consumer durables and electronics) and Depot (books, music, etc). The services section offers service options such as - Mr. Carpenter, Mr. Plumber, Mr. Electrician, Mr. Painter, Tilewala, Design Centre, best wishes, grihapravesh, door delivery and installation. The store also has a customer service desk to help customers with any service related challenges. Home Town is an amalgamation of the value and lifestyle propositions, so appears eminently approachable to the budget-buyer, the aspirational customer as well as the lifestyle-driven customer. The displays echo the aspirations of the consumer, keeping traditions alive in a contemporary world.


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4.2. Handicrafts & Dcor Products Value ChainThe Handicraft supply chain of India consists of importers and wholesalers who supply goods to retailers and small chains. The importers/retailers prefer to deal directly with the producers /exporter. Even the smaller independent shops that deal with the traditional, ethnic products do most of their own importing and dealing with manufacturers. The distribution channel for crafts and decorative products in India follows the following model -

Producers

Importers / Wholesalers

Final Point of Sale

Small Retailers Most common channel Carry variety of product categories under one shop

Large Retail Chains Stock in bulk Sell to final consumers or small retailers

E Retailers In recent times, internet has emerged as a major distribution channel for dcor & handicrafts items

There is a definite trend in the Indian market towards flattening of the distribution channels for crafts and decorative products. The reason being, importers/ wholesalers and large retailers want a closer relationship with production in order to implement customized product development, an essential for staying competitive in the market. As such the importers/wholesalers are increasingly buying from producers with export marketing capacity, thus eliminating the need for an independent exporter and as they are working less with sales representatives. Secondly, there has been a rapid growth in the increase of crafts and decorative products sales through large retailers like national and chain stores and mail order catalogue, which has further


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accelerated the flattening of the distribution channels. This is mainly because the large retail chains prefer to import directly from the producers and thus eliminate the role of the importers/wholesaler. Direct import retailers that work with more than one supplier in a given country often opt to work with an independent agent or an overseas export consolidator who is responsible for coordinating orders and shipments. The small importers/wholesalers are also no longer working with sales representatives so as to keep price margins competitive & because sales representatives are geared to work with large wholesale companies that have greater volumes and higher price margins than small to mediumsized companies. The most popular channel for distribution of the more traditional, ethnic products of the decorative type is the large number of small and independent retail stores. However, with respect to products, that are functional and not purely decorative, department stores and hypermarkets are becoming the more prominent distribution mode. Since the large department stores cannot compete on the terms of price, they cater to the higher-end market with special up-market ranges.


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5. Industry Analysis5.1. Indian Furniture Industry Analysis Five Forces ModelTo determine the competitive intensity and thus the attractiveness and opportunities of the Indian Furniture Industry, it is important to consider the following five critical factors: 1. Bargaining power of the suppliers how strong is the position of suppliers. Is there a monopoly in supply side? 2. Bargaining power of the customers how strong is the position of buyers. 3. Intensity of competitive rivalry what is the level of competition among the existing players of the industry 4. Threat of substitute products How easily can furniture be made cheaper or substituted by other products 5. Threat of new entrants How easy or difficult it is for new players to enter the industry?

1. Bargaining power of Suppliers 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 Customers 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 Products 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 impactsIntensity High Medium

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 barriersLow


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A detailed analysis of these five forces determining the competitive intensity and attractiveness of the Indian furniture Industry is provided below: 5.1.1. Bargaining power of Suppliers In terms of raw material, India as a country has abundant raw material supplies for this industry. Not only the domestic availability, but the easier imports of raw material also lower the bargaining power of the suppliers. It is no more difficult to import the raw material of your choice. In fact, there are countries that specialize in different categories of raw materials. For e.g. Malaysia is known for its Rubber wood. Similarly, Indonesia is preferred for importing synthetic rattan, cane and MDF (medium density fibreboards). However, unlike the finished products supplies, the raw material supply industry is y

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