Chair Games in China

Feb 01, 2013

Chair Games in China

The furniture market in China has grown rapidly since China changed to a market-oriented economy and opened up in the late 1970s. The Chinese domestic market for furniture in 2010 was estimated at US$100 billion. But in such a giant market, with over 1.3 billion people and more than 600 municipalities and large cities, where should you target your marketing thrust?

Over the past decade, it was the first-tier cities, including Beijing, Shanghai and Guangzhou where wealthy groups, the middle class and well-educated people clustered, that had the greatest potential. However, Beijing and Shanghai are reaching a growth bottleneck, and there have been signs of an outflow of the urban population into peripheral cities. In fact, less than 5% of the Chinese population now live in these first-tier cites. At the same time, over 100 cities in China now accommodate more than 1 million citizens each, more than many other world-class cities, such as Amsterdam and Zurich, and these are the cities now referred to as second- and third-tiers cities.  New households moving to these second- and third-tier cities are driving the furniture market as well as the property market, and this is where furniture players can find the most opportunities.

First-tier cities: Beijing, Shanghai and Guangzhou

Second-tier cities: Chongqing, Xi’an, Wuhan, Nanjing, Chengdu, Shenyang, Hangzhou, Tianjin, Qingdao, Xiamen, Ningbo, Changsha, Wuxi, Dongguan, and Jinan.

Third-tier cities: Fuzhou, Kunming, Changchun, Harbin, Changzhou, Nanchang, Hohhot, Wenzhou, Zhuhai, Urumqi, Shaoxing, Zhongshan, Loyang, Jilin, Xiangyang, and Shantou.

Game on

Government policy has always had a significant impact on the market. Although last year the Chinese government introduced a series of policies to rein in the overheated property market, in the long run, the property market will maintain an upward trend as the government continues to promote urbanization.

Expanding domestic demand to boost economy is a major target of the Chinese government’s 12th Five-Year Plan, and urbanization is one of the most efficient measures of stimulating this demand. It is worth noting here that the urbanization rate in China broke through the 50% mark last year, and the rate is still increasing. People keep moving away from first-tier cities because the cost of living is too high, and they will need to purchase new household items when they start a new home, thus giving the furniture market a boost.

Royal Furniture, one of the three largest home-furniture manufacturers and retailers in China, already started its expansion into third- and even fourth-tier cities two to three years ago, and has achieved an outstanding 30% annual growth rate over the past several years. Mr. Ming-fai Ma, chairman of Royal Furniture, said that their success rode on the demand for furniture driven by urbanization. It is also important to note that the company was able to provide appropriate furniture to new target consumer groups which rate price over brand and design. As of today, revenue from third- and fourth-tier cities accounts for more than half of the total amount, indicating the importance of this market segment, not only to Royal Furniture but also the industry as a whole.

On top of this, the central government has proposed an indemnifying housing project that involves nearly 8,000 hectares of land, or 36 million units, to help citizens to buy a home. Of these 36 million flats, more than half would be built in lower-tier cities. Vice Premier Li Keqiang noted that, “the construction of affordable homes will help curb excessive price rises and fuel urbanization, which will in turn unleash consumption and investment potentials and push development of related industries.”  Soon after news of this project was released, stock prices of furniture companies rose, meaning a much brighter prospect for Royal Furniture and other players.

The new furniture-subsidy program for rural areas is another golden opportunity enabling furniture retailers to more easily expand their business into second- and third-tier cities in China. Similar to the exchange program for home appliances and automobiles launched earlier, either citizens will receive a subsidy directly from the government for new purchases, or retailers will get reimbursement from the government after selling their products. Beijing has been selected to be the trial city for this new policy and the groundwork is now being laid by government bodies. No matter which approach is adopted or in which city it is first implemented, the policy will immediately stimulate market demand and give a new boost to the industry.   

China is huge market where serious players can reap big rewards. However, a one-size-fits-all marketing strategy does not work in China. Demographics, consumer behaviors and shopping habits all vary from major cities to lower-tier cities. In second- and third-tier cities, people’s spending power is relatively lower and thus price is their biggest concern. “Practical” would be the most appropriate description for the shopping habits of people in smaller cities. In the case of Royal Furniture, the company fine-tuned its strategy for third- and fourth-tier cities with more aggressive pricing. IKEA, the Swedish furniture retailer, one of the pioneers among overseas enterprises entering the China furniture market, implemented a keen pricing strategy to win as well. With their first store opening in 1998 and their eleventh this June, IKEA had revenues of RMB$4.9 billion last year just within this single market. The company is planning to open three stores every year from now until 2016 and all these will be located in second- or third-tier cities.              

So do your homework, and see if your company can get a share of this rapidly expanding market!


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