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Furnishers optimistic despite tight home policies

(China Daily)

14:16, June 25, 2012

Tightened property buying policies in China put pressure on home furnishing store operators but experts say weaker market demand will not have a significantly negative impact on the industry in the long run.

Home furnishing outlets that pool several retailers under one roof are flourishing in China, along with the booming property market. The business model allows customers to enjoy one-stop shopping for furniture and appliances, improving efficiency and saving time.

As one of the most important distribution channels for furniture and home decoration materials, the performance of home furnishing stores is a barometer of the industry in China.

China Business News reported the total floor area of home furnishing stores in China is now 40 million square meters. In Shanghai alone there are more than 120 home furnishing stores.

Leading domestic home furnishing chain operators include Shanghai-based Red Star Macalline and Beijing-based Easy Home. Foreign retailing companies including Sweden-based Ikea and British B&Q have also opened stores around China.

When the central government made a pledge to curb fast rising property prices in China, experts forecast it would have a negative impact on home furnishing retailers.

"Residential property trading is one of the most important factors that drives the sales growth of home furnishing companies. The tightened policies mean there will be less demand for new home decoration so there will be some negative effect on home furnishing malls," said Xue Shenwen, an analyst with domestic market research firm China Investment Consulting.

"When I walk into home furnishing malls, the salespersons usually outnumber the customers," said Yang Li, a white-collar worker in Shanghai who is planning to buy some furniture for his apartment this year.

"They provide me with detailed information about the products and I can feel they are putting a lot of energy in trying to sell their products," he added.

China Central Television reported that sales at some home furnishing malls in Beijing decreased by more than 30 percent year-on-year in early 2012. Some small companies were forced out of business.

"Small companies with weak financial backing and merchandizing abilities are suffering," said Jia Peng, an analyst with consulting firm Frost & Sullivan Inc.

Despite the current slowdown in the home furnishing business in China, industry experts still have a positive attitude toward the industry.

"The main purpose of the tightened housing policies is to squeeze speculative demand. That will have little impact on the strong demand for new apartments. Strong demand will help the market recover quickly," said Jia. "Meanwhile, the affordable housing projects promoted by governments will boost the sales of some lower-end home furnishing companies, although the demand may not be that strong."

In addition, experts said the tightened policies might trigger an overhaul within the industry and allow surviving mall operators to use their resources more efficiently.

"It will help the industry eliminate some small companies that do not have a strong competitive advantage in the market," said Wu Yuqi, marketing manager of Jisheng Wellborn Furniture Group, a home furnishing mall operator based in Shanghai. "Companies that achieved quick expansion over the past few years will have time to review their performance and might consider adjusting their management structure to achieve better development in the future."

With a generally positive attitude toward the industry, many home furnishing companies announced expansion plans for the next few years.

Red Star Macalline announced in early 2012 it would increase mall numbers to 200 by 2020. According to its website, of its current 52 malls, 15 are owned by Red Star, 13 are leased, and 24 are franchised. The total leasable area of self-owned and leased stores is currently approximately 2.5 million square meters with a typical mall area of between 40,000 and 150,000 sq m. Easy Home plans to open 17 new furnishing shopping malls this year. In 2010 the company had 25 stores across China and planned to increase the number to 35 by the end of that year.

Experts suggested that seeking development in some fourth- and fifth-tier cities might help companies maintain growth.

"Many small cities do not have one-stop home products retailing malls, so it will provide great businesses opportunities for companies," said Jia.


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