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Jun
2015

Residential property sales and the high-end furniture market

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The government’s efforts to slow the domestic property market that were initiated 24 months ago, which coincided with the general slowing of the economy appear to have worked well, but as a side affect they left many furniture and home decoration brands struggling to make money after their earlier years of rapid expansion. In recent months, many cities have taken off the brakes that were applied to purchasers in a hope to prevent the local market stalling. In this sector report, we review recent changes to the rules for buyers, and look at the furniture consumers of today.

The brakes come off

Harbin Land and Property Management Authority formally announced that from 16th August 2014, neither local residents nor non-residents need to provide personal housing proof when purchasing a new property in the city, meaning there is no restriction preventing people owning a second apartment as there was previously. The announcement makes Harbin the 36th city in China to relax its restrictions.

Mongolian city Hohhot, and Jinan were the first to loosen their restriction; 34 other cities substantially loosened or even cancelled their restriction within the following month; all are tier two or three cities.
So far, there are 10 cities that have neither loosened or cancelled their restrictions, they are 4 first-tier cities: Beijing, Shanghai, Guangzhou and Shenzhen, and 6 second & third-tier cities: Sanya, Zhuhai, Nanjing, Dalian, Yinchuan, Xining.

The potential for the property market in 2014 is still not that optimistic. The situation doubtlessly has some impact on buyer confidence, but after many cities loosened their restrictions, those who hesitated to purchase a home are likely to choose this as an appropriate time to take action. By the time they do, it is expected that the market will be more stable and the capital gain will be more reasonable.

Encouragement for the furniture sector

The relaxation of the national housing policy will surely also enhance the confidence of the furniture market. In the May 2014 issue of Luxury Insights China, we reported that when compared to 2012, luxury furniture brands all suffered from the slowdown of the market and some of them even decreased their store numbers. We believe that the furniture market will gradually warm again with greater stability in the property market and an increase in house-purchasers.

However, the previous method of opening new stores quickly will not work anymore for the rapidly maturing Chinese luxury consumer. Furniture brands must apply greater attention to product, store, and service upgrades just as luxury brands have had to do in other sectors. Enhancing brand value and consumer experience is the way to attract and convert more Chinese consumers.

Changing consumer attitude

In parallel with the recovery of the market, the younger Chinese generation now have increased interest in luxury items than that of their parents. It is far more likely for them to buy luxury furniture for their new home when they marry, so the current period is a critical time for brands to build awareness in the market generally, and establish a strong connection between themselves and their future customers. And as importantly those who will make recommendations to others. These same consumers are likely to move to another home in later years or simply replace the furniture they already own.

It is expect that the furniture market will become even more competitive, naturally more mature, and for some consolidation to take place amongst the brands as China and as consumers become more international. Strong brand values and financial position will be essential for furniture companies to continue to capture the market opportunity and hold off their competitors, many of whom are likely to increase their offer of similar styled product at lower prices, to appeal to a population has become more internationalized in general.

Luxury and premium furniture marketing in China

Consumer attitudes in general to luxury and premium purchases have changed as they have become better educated and informed. In recent years consumers have become more sophisticated when it comes to spending money on luxury, yet they are more price sensitive, in particular to differences between prices in China and elsewhere in the world, and they want authenticity from a furniture brand.

It is important to acknowledge that a furniture brand being clearly recognized as an established international name is heavily reinforced, as must product quality. Equally, that being an international brand in China does not, in the consumer’s eyes necessarily justify product prices to be considerably higher than elsewhere in the world. Value for money is important to today’s affluent Chinese consumers.

Differentiated marketing among the middle classes

In segmenting the affluent population of China and identifying the potential consumers for international high-end furniture brand, we split them into 5 distinct groups. The first three are based on the growing middle and upper middle class, and follow their transition through increased age and income. The latter two are specific groups whose characteristics and lifestyle would in our opinion make them more inclined to invest in international high-end furniture.

The pioneer

1

Description

  • 25-30 years old
  • Annual income over 200k RMB
  • A person of character, independent and open-minded, risk taker, willing to take a challenge and learn new things
  • They have no property or car, but have independent income and lifestyle and are in the process of establishing their career
  • They are planning or preparing for marriage and considering buying property

Their lifestyle

  • Travel to work by metro or taxi
  • They have lunch with colleagues in a restaurant or the office kitchen
  • They hang out with friends in restaurants, bars, KTV and cinema
  • They surf online and are regular contributors to social networks like Weibo

Their needs

  • To have leading edge products and services
  • Unique design, good quality but economical
  • To have a sense of beginning to belong to the middle class

The approach

  • The Brand position: modern designed, safe and environmentally yet cost effective furniture
  • Product type: comparatively low price end of BC collection, likely to shop for a package price if they plan to buy a set of furniture
  • Where: advertising online, in taxi’s, the airport, elevator or office building, cinema, KTV, wedding and decoration magazines
  • Their preferred shopping location: furniture malls

 

The aspirant

2

Description

  • 31-40 years old
  • Annual salary over 300k RMB, the core of the middle class
  • Confident and self-satisfied, sense of belonging to the upper middle class
  • They already have assets and a successful career but have higher goals to achieve
  • They focus on progress and accumulation in terms of working experience, social network and financial investment
  • They own at least one property or are about to change to a better one
  • They are planning to have, or have just had children

Their lifestyle

  • They drive to work
  • Travel a lot on business trips
  • Exercise in the gym

Their needs

  • Health and safety conscious
  • High quality and good taste
  • Reflect their success and confidence
  • Want a sense of belonging to the upper middle class

The approach

  • The Brand position: focus on safety benefits, high quality, taste and famous designer collections
  • The product type: middle price range and few higher price pieces
  • Where: advertising in airports, hotels, elevators or office building, decoration magazines, gym
  • Their preferred shopping location: furniture malls and exclusive stores

 

The achiever

3

Description

  • 41-50 years old
  • 500k+ RMB annual salary
  • Respectable, tasteful, stable, reserved and understated
  • Have a successful business and social status
  • Self-fulfillment, and pay attention to the economy and politics
  • Pay attention to detail and quality, have an artistic style and taste
  • Care about their health and relaxation, the family, the environment, their lifestyle and social network, and looking for new things to experience
  • Have a family and emphasis on their children’s development, education and family relationships

Their lifestyle

  • Drive to work
  • Often travel on business trips
  • Meet with friends at golf or other private club

Their needs

  • High quality and good taste
  • Fine details
  • Acknowledgement of their social status and identity

The approach

  • The Brand position: focus on safety, health, quality and taste
  • The product type: higher price range products
  • Where: advertising in airports, elevators or office buildings, decoration magazines, and the gym
  • Their preferred shopping location: furniture malls and exclusive stores

 

2nd generation wealthy

4

Description

  • 25-30 years old
  • 200k+ RMB annual expenditure
  • Family has more than 100 Million RMB in assets
  • 95% of them have university undergraduate degree and over 50% have an overseas education
  • Over 50% of them start their own business and contribute significantly to their social network
  • They are given financial support from their family, either in their personal life or their career

Their lifestyle

  • Typically over half have private car and over 35% own 2 properties in their own name
  • 2/3rds spend over 60,000 RMB per year on travel and 70% of them spent over 60,000 RMB per year on getting together.
  • Singing karaoke, going to the bar and playing Mah-Jong are the main activities.

Their needs

  • High quality tasteful products
  • To satisfy their group psychology
  • They need to match their activities and appearance with their perceived social status
  • They have a unique manner and characteristics

The approach

  • The Brand position: modern and leading edge design, high quality and taste with designer elements
  • The product: a wide price range
  • Where: advertising in the gym, cinema, hotel, and airport
  • Their preferred shopping location: exclusive stores

 

The housewife

5

Description

  • 25-45 years old
  • Annual personal spending money above 200k RMB
  • They have high household income over 500k RMB
  • They have a great deal of leisure time
  • They have had or are about to have children
  • They influence all the major household purchases

Their lifestyle

  • They have their own car for taking and picking up the children from school
  • They have a fixed housewives circle and friends who are essential factors that influence their consumption behaviour
  • They go shopping and exercising, they have facials and play Mah-jong with their housewife friends.
  • They get together with their friends in their own home
  • They congregate with friends to goto the shops, supermarket, gym, and beauty and hair salon
  • They often accompany their children for all kinds of training at weekends and travel with the family on holiday

Their needs

  • Their child and husband are their centre of their life: health, safety, and education are critical factors
  • They have a group psychology
  • They have a fear of dropping out with society, and not keeping pace with life

The approach

  • The Brand position: demonstrable internationalization, value for money, and furniture collections
  • The product: a wide price range
  • Where: advertising in the gym, restaurants and in decoration magazines
  • Their preferred shopping location: exclusive stores and furniture malls

Marketing approaches for international furniture brands

Like all luxury brands, International furniture brands need to constantly build awareness and differentiate themselves from their direct and indirect competitors in China. If an affluent Chinese consumer buys some normal domestic furniture, no matter how nice it is, or what it cost them, they would never broadcast this to their friends because it does not enhance their status in the eyes of others. Therefore international brand must via its marketing assist its prospective customers to improve their own status and feeling of self-improvement and worth.

The following are potential brand attributes that should be emphasized in China.

Leading edge international design

Being international in outlook and attitude is important to the target consumer groups. Being leading edge and international is a clear differentiator when compared to other International brands and especially Chinese brands designing modern international, and in many peoples eyes similar furniture. The brand origins and history must also support this attribute.

Construction quality

The quality of any product in China is a major topic of concern and discussion. If through its design, and the use of materials the brand makes product of the highest international quality compared to others, it must reiterate this in its marketing activities. If fabric is made in Europe or the US rather than China, and if wood can be made thinner but stronger, consumers need to understand this value, and what it brings to their lives.

Product safety

The past history of poor product safety in China and a perception amongst consumers that Chinese made product is laden with harmful chemicals and not as safe as that from international brands should be leveraged. Marketing should emphasis this fact. We must also not ignore that the middle class are the group driving the environmental challenge in China and they care about the future of their country and their families.

Value for money

Chinese wealthy consumers are no longer willing to pay high prices for products unless they can see or are clearly shown value for money that they can justify in their own minds and use to demonstrate their status to others. If a furniture brand is relatively expensive, marketing materials should use leading edge international design, quality and safety to justify this wherever possible.

Summary

The furniture market in China began changing a few years ago, becoming more competitive particularly as consumers who had once only considered spending money on items that allowed them to show off on the streets began to be attracted to ways to make their lifestyles more rewarding.

In a country where the fear of poor product safety and quality is huge, and at a time when the Chinese middle classes are pushing for greater environmental safety, a furniture brand should emphasises its quality, safety and environmentally friendly attributes and differentiate itself from the crowd.

Young Chinese people are more internationalized than ever, and want status in both the Chinese and global society. They talk incessantly online and face to face with their friends and connections about what are good and bad in their lives, and trust one another’s views. They are potentially the largest group of furniture customers for the coming years, and need to know, admire and respect your brand.

 


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