Changes within the market and the need for flexibility
Recently I have been involved in the re-planning of a large luxury distributor of foreign furniture in China. For obvious reasons I won’t reveal its name, let’s say they are one of the main players in the luxury furniture market in Asia, and they went trough a huge scandal a few years ago… That scandal severely damaged their credibility in the eyes of occasional and potential customers affecting their brand and market shares up until now. Today, they believe, the damages of those years are almost gone, but as Chinese growth slowed down starting in 2013, they have yet to find new ways to market their products and attract new customers. People’s increasing purchasing power in the past ten years has driven the Chinese furniture market to develop in leaps and bounds. From 2010 to 2013, the sales value of wholesalers and retailers above a certain scale in the industry grew at an average annual rate of 41%. In 2013, the growth slowed down somewhat to 21%, partly due to the slowdown of the Chinese real estate market and partly to the anti-corruption campaign promoted by Xi Jinping. In 2014 sales value surpassed RMB 200 billion, and despite despite the real estate slowdown not showing signs of reversal, China’s furniture market has vast room for expansion, as much as interior design has.
At present, products available on China’s furniture market can mainly be classified into: 1) Home furniture: used in the homes of urban residents, including sofas, TV cabinets, tables and chairs, kitchen furniture and bedroom furniture. 2) Hotel and guesthouse furniture: dining tables and chairs, sofas as well as guest-room furniture for hotels and guesthouses. 3) Office furniture: desks, chairs, bookshelves and cabinets for use in the office. 4) Public institution furniture: for use in public organizations such as medical, sports, cultural and educational institutions.
The fast growth of Chinese economy has created a complex stratification of customer tastes, that are not only affected by their social status but also [mostly?] by their location, age and social media exposure. This makes it particularly complex for importers and distributors to define their target and to keep strategies up to date year by year. This has put a huge pressure on resellers as they are asked to increase their flexibility. Traditional brick-and-mortar strategies are less and less feasible: on one side because of the costs of renting premium commercial spaces; on the other because customer demand has been changing too fast for large retailers to keep up with changing tastes. This is why the e-commerce challenge is essential for every player in this field.
Different kind of O2O e-commerce models are gaining popularity in China’s furniture market.
O2O refers to the linkage of online marketing and online purchasing with offline operation and offline consumption. There are now different types of O2O e-commerce operators on the mainland and the O2O model takes various forms in practice. O2O strategies in China’s furniture market put a lot of emphasis on the so called “soft-decor” [软装], as the traditional emphasis Chinese customers used to put on the use of materials is shifting towards the use of decorative items, the “soft decor” market is revealing its potential, and it’s the most suitable for e-commerce. Soft-decor generally refers to the installation of easy-to-move-around decorative and furniture items (i.e. curtains, sofas, lightings, decorations and home wares) and is mainly targeted at high-end consumers.
Qumei is a typical example of furniture manufacturing enterprise and e-commerce operator. The company uses its website as its sales platform, showcasing the images of various products and accepting online orders from the consumers. Consumers may also opt for offline experiences by visiting dealers’ physical stores and place orders there at online prices. This not only allows furniture brands to carry out sales and marketing but also boost product sales within a short time, therefore speeding up cash flows and reducing inventory pressure. Another type of furniture e-commerce is conducted by traditional furniture sellers.
Easy home [居然之家, sponsor of our exhibition in Milan last year], for example, has developed its website to “move” the offline experience stores online. It targets consumers who like their brands but wish to select products online.
Some O2O e-commerce operators start as pure online brands and open offline experience stores afterwards. In other words, they build up their e-commerce platform by extending their coverage from online to offline channels. Meilele is an example of such practice.
Foreign enterprises are more prone to hybrid models that combine online stores with a physical showrooms. It’s the case of Ethnicraft Online, the B2C concept of Ethnicraft, a Singapore based teak furniture brand founded and managed by a group of Belgian entrepreneurs. After successes in Singapore and Kuala Lumpur, Ethnicraft Online expanded to Shanghai earlier this year with a 185 sq. meters showroom in Jing An. Consumers can browse Ethnicraft Online’s website at home, select their preferred products, measure dimensions, and even make their order online. For consumers that want to touch and feel the product, they can make appointments in the showroom. Ethnicraft products are designed by their in-house team in Europe, but they also collaborate with international designers, e.g., Singaporean designer Nathan Yong. Their teak is sourced from Java in Indonesia with production unit mainly located in Central Java in Indonesia and no sourcing in China.
1- Foreign companies willing to market their furniture to the Chinese audience should be aware that many shoppers within the middle class have very busy work schedules and will be able visit to your showroom only on public holidays. Allow young families [the biggest share if we talk about B2C furniture market] to shop at ease by adding children’s corners to the showroom.
2- Online marketing usually means working with Google, Facebook, etc., but when it comes to China, be aware that it will take a great effort to figure out how to correctly use Chinese platforms Baidu, Weibo, QQ, WeChat etc.. And while in some other asian countries like Singapore, Malaysia, etc, the communication can be easily done in english, China really requires a deep engagement with the local language. Company websites should all come with a translated version and a Chinese name for the company.
3- E-magazine, e-commerce, physical display and event management should be all part of the same system, where customers are treated as members of an exclusive club. After all we are talking about luxury products. In my professional experience I noticed that traditional furniture enterprises, that used to market their products through distributor, through specialized stores and chain stores, or displaying and selling products through large furniture malls or furniture marts, face enormous difficulties when they try to make their O2O business work. In the specific case of the company we are consulting now, they problem lies in the fact that basically they see the e-commerce as a stand-alone tactic, a must-have; they fail to understand that it should fit into the big picture of a new marketing strategy, when instead customer-involvement through media and events planning should be the center of their brand management. Main reason why they fail to do this is because they basically lack the knowledge to build a system able to tell stories that add value to the products they sell.
4- It might sound obvious but it’s important that resellers truly understand where the value of their products come from. When last year I interviewed Lyndon Neri and Rossana Hu, I figured out that the reason behind the success of their furniture store Design Republic, is that it has them as creative directors. Other resellers, like our client for instance, do not know how to correctly display their products in order to show the real value of them, simply because in many cases they do not know where does this value come from! Luxury furniture products in China can be divided in three big families, each with its own 卖点 [selling point]:
a) Classic furniture. This family of products are best selling among customers aged 45+. Many of them got rich by being in the right place in the right time, lacking international experience and university degree, they are what Chinese call Tuhao [土豪]. Classic [baroque] products need to be sold by showing the value coming from precious materials and fine artisanship. Customers of this type of furniture don’t value the product by its aesthetics nor by its comfort. They judge it from how rare the material is and how many hours were spent to produce it. In their subconscious they think “see how many hours of foreign artisans work I can buy with my money”. Very basic. With this type of products it’s important to show the exclusivity of the materials used and the backstage of the handicraft.
b) Fashion furniture. This kind of products sell the most among customers aged 35+. They are successful business-men and -women, and now they want to be part of an exclusive community. They realized that they spent their youth trying to make money and now that they reached financial stability they think they need to improve their tastes and life quality. This is why they choose furniture of brand they recognize as luxury brand. This kind of products have actually a very low content of creativity, materials or craftsmanship are also not worth their price; but it’s precisely the low level creativity and innovation that satisfies customers needs for confidence and social acceptance, it doesn’t matter if these brands are all famous just for clothes and accessories. I would categorize these products as 俗 [tacky]. Market these brands together with their fashion counterparts. Organize social events for the customers.
c) Design furniture. What would be seen as the real deal in Milan, is the hardest to sell in Mainland. Design products, especially furniture, are still a tiny niche market in China. In fact design education in general is at its very beginning in China in general, and China totally missed the peak of interior and furniture design of the 70s/80s. This means customers are totally not educated to these type of products. This will always be a niche market in China, and to sell these things you need to tell potential customers the story behind each project and designer. Creativity is for sure on the hype in China these days, but don’t expect anybody to pay premium price for products they don’t understand made by brands they never heard of. Organize your display space as a design museum, and let the product tell about how it became part of the design history, how much research there was behind it in order to make it comfortable and what do its shape and colors want to express. Younger and well educated customers with international background will eventually opt for this family of products.
What do you think? How is your experience?
PS: if you are interested in the hardships of of one of the most famous Italian design brand in China read this: <<Kartell wins counterfeit suit against Chinese imitator>>.