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Jun
2015

Home & Interiors June 2013

General furniture market

The overall market for furniture in China is by most estimations growing at between 20 and 30% per year and has been for the past two to three years, and according to our own research, we predict that the market in 2013 for high-end modern European furniture in particular is worth approximately 7.8 Billion RMB or more, an increase of 16.9%.

The graph below shows ‘the national decoration material and home furnishing index (BHI)’ which tracks the sales of products related to the internal decoration of homes, which includes furniture. Based upon historical trends, there has always been a peak during Golden Week in October and a slowing towards Christmas and Chinese New Year, before sales pick up again in the spring. Data from National Bureau of Statistics indicates that, the sales volume of furniture from January to April was 53.1 Billion RMB, an increase of 22.3% compared to that of 2012.

The recovery is possibly driven by:

  • Recovery of the property market
  • A policy which cost 20-percent capital gains tax on property sellers, as required by the central government, drive the sales of residential building before its release. From January to April, sales area of residential building is 297.6 million sqm, increased 38% compared to 2012.
  • April to June and August to November are the main two periods for Chinese decorating their homes.

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High-end furniture pricing in China

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Typically foreign brands will increase their prices once or twice a year. Usually, some newer Chinese dealers will increase prices by 10% at beginning of the year in case of the brand should raise their price; but experienced dealers will negotiate with the brands to maintain prices throughout the year.

“Although this sofa only cost 10,000 RMB from the factory, we have to add tax, transportation costs, storage rental fees and labour costs, so 40,000 RMB is a reasonable sales price, we can’t even make a profit.” According to a salesman working in a furniture mall, Wang Yulan, the manager of Super Comfort Furniture, confirms that 4 times the factory price is a reasonable pricing strategy.

How much do consumers spend on furniture?

According to a number of head’s of interior design companies that we have interviewed, the price consumers typically spend to furnish for a high-end apartment or villa is about 1,000 – 3,500 RMB per m2.

For example: A 100m2 high-end property in Shanghai costs 4million RMB or more. Based on the estimate above, the cost of furniture is approximately 200,000 RMB, or 5% of the overall property value.

It is also worth noting that when Chinese move to a new home, they are unlikely to take their existing furniture, but to buy everything new for the next property.

Buying furniture in China

Similar to those working in the luxury sector, furniture brands that already have a foothold in the market have been expanding their footprint across the country particularly over the last two years. In the past few years, more foreign furniture suppliers have started to enter China, and many Chinese furniture brands have both expanded their geographical coverage and their product lines in order to offer the growing number of Chinese consumers a wider choice of product for their homes. For the wealthy, often the entire interior design of the shell of the property is subcontracted out to an interior designer, who will also recommend the furniture to their client.

A furniture mall is the most popular place to view and buy for the middle classes and the preferred shopping location for the wealthy according to our recent consumer survey of 43 typical Chinese HNWIs.

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Furniture malls

The cost of retail space in furniture malls increased significantly last year, in Beijing, Shanghai and other wealthy tier two cities, rising to six and seven thousand RMB per sqm per year which means the rental fee of a 100 sqm store will be over 700,000.

The progressive expansion of furniture malls is a result of a shift in consumer behaviour. However, the over expansion of malls in recent years has indirectly resulted in a buyers market.

Presently, the total area of domestic furniture malls is over 40,000,000 sqm yet a furniture industry expert has indicated that based on annual furniture sales of 100 Million RMB/10,000sqm, there is currently only a need for 20 Million sqm for mall space because current domestic annual furniture sales are about 200 Billion RMB leaving over 50% of the current malls space idle. In the last two years, over 1,000 mid-sized and small malls have gone into bankruptcy.

Sales through interior designers

According to our survey, 39% of affluent consumers rely on an interior designer to choose their furniture if they used one, the sale of luxury furniture valued at hundreds of thousands of RMB ordered through interior designers is a common and efficient sales channel in China. Wealthy consumers are not interested in, and do not have the experience to select their own furniture, they rarely go to furniture malls and tend to leave all the work to the designer. As a result of the sale, typically 30% of the purchase price is paid in commission to the designer for recommending the furniture.

General consumer attitudes

The majority of consumers of high-end furniture are Chinese affluent middle class, who are positive, energetic and passionate about work and life, eager to succeed and confidant, yet at the same time insecure and require reassurance through marketing. They are becoming increasingly mature and successful, paying greater attention to quality and taste. They are also eager to gain recognition from others. Modern European furniture is very popular amongst this group as they see it fits their lifestyle, and although their parents may not have entertained at home in the past, younger Chinese consumers are beginning to want to show off their homes to their friends.

Consumers tend to focus more on the advice of experts in terms of brand acceptance and orientation. Their requirements for quality and service from consumer goods have become more critical, and aesthetic demands are often required to be equal or possibly greater than their practical value. Due to the accelerated pace of life and increased pressure they feel, shopping time is becoming shorter and ways to simplify consumption sought. They want to see the added value of products quickly and clearly, they don’t have the time to assess this themselves and expect brands to show them.


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