After entering 2022, the home furnishing industry generally faces the situation of weak market size growth, frequent store closures, and operating losses. At the same time, coupled with the impact of the epidemic, the home furnishing industry can say that life is only a good time.
We believe that the core comes from three aspects.
Reason 1: Real estate dividends and store opening dividends are temporarily suspended
As a strong real estate-related industry, the development of the home furnishing industry in the past 10 years is inseparable from the rapid growth of real estate sales.
Kitchen appliances, customized home furnishings, and LED lighting have enjoyed the rapid growth of real estate sales in the past 5 to 10 years without exception. With the adjustment of the real estate cycle, real estate has entered a downward cycle, and the contradiction between supply and demand has become prominent. The home furnishing industry, as the downstream of the industrial chain, has been hit the biggest impact first.
subsequent industry growth rate will mainly come from the increase in the penetration rate of of each sub-category, or the increase in brand market share, and the business thinking of enterprises will gradually shift from incremental dominance to taking into account stock competition.
Reason 3: Product homogeneity /The marginal competition caused by capacity expansion
Currently, the home furnishing industry companies generally have strong manufacturing attributes, and the channels are mainly distribution systems. There are no companies that have in-depth integration of the entire production-retail industry chain.
We split the industrial value chains of lighting, software furniture and customized furniture respectively as follows:
From the above value split of the industrial chain of each sub-industry of home furnishing as an example, the current integration of the industrial chain by listed companies in the home furnishing industry is mainly concentrated on the manufacturing end, focusing on optimizing the supply chain, establishing flexible production lines, and increasing the automation range, thereby gradually reducing the overall manufacturing cost.
But we should also see that the manufacturing threshold of home furnishings is relatively low, and the channel-related functions of listed companies are generally responsible for the dealers.
When channel-side costs account for a large proportion of the value of the industrial chain, if the channel-side functions and costs are not systematically optimized and integrated, if the advantages of manufacturing-side costs are based solely on the advantages, it is not enough to create a large enough competitive barrier to prompt small and medium-sized brands to withdraw from the market.
At the same time, due to the continuous release of industry dividends in the past few years, the production capacity of the home furnishing industry continued to increase, and the margin of competition began to intensify when demand growth slowed down. We have seen more new entrants in the customized home, lighting, kitchen appliances and other industries in 2018. The original brands are also increasing their production capacity, product prices have begun to decline, and the margin of industry competition has intensified.
Reason 3: Traffic dispersion brought about by channel fragmentation
Almost all consumer goods industries are now facing a situation of channel diversification and traffic dispersion.
The essential reason behind it is the development of infrastructure construction and the popularization of the Internet, making consumers' access to goods simpler and faster. Against this background, the original relatively single way to acquire customers, such as various home building materials cities and offline KA stores of home appliances in the home furnishing industry, have begun to be diverted by new channels such as home decoration (complete decoration) channels, fine decoration, and e-commerce. The diversification of
channels requires enterprises to have more refined channel management capabilities to resolve traffic and conflicts of interest between various channels.
When the original channel operation and value integration are relatively inefficient and require more costs and expenses, new channels often have an impact on the value distribution of the industrial chain of traditional channels, thereby affecting the stability of operations or bringing changes in the competitive landscape.
Therefore, increasingly fragmented channels and customer acquisition methods require enterprises to operate different channels efficiently and refinely, and solve traffic and conflicts of interest through good architectural design.
How to break the situation when facing the above dilemma? We will answer in detail in the next article.
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