The long-standing issues within the home building materials industry have come to the fore during this economic downturn. Beijing initiated a pilot program encouraging the replacement of old furniture with new, and participants saw at least a 30% boost in revenue. However, experts like Meng Guoqiang, chairman of the China Construction Material Circulation Association, argue that such measures cannot fully reverse the decline in the home furnishings sector. The problems plaguing this industry—like uncontrolled hypermarket expansion—are deep-rooted.
Take Bafanglong Lighting City, located on Beijing's West Fourth Ring Road. Established in 1999, it once thrived as a major lighting hub. But starting March 31 this year, the market transitioned away from selling lighting products toward selling flowers, birds, fish, and insects. Bafanglong, once among the "Big Eight Lighting Cities," became the first casualty of Beijing’s home furnishing stores when it shut its doors in 2012. Since 2009, impacted by the global financial crisis and stringent real estate policies, foot traffic dwindled and merchants left. It took until March for this 7,000-square-meter space to decide on its transformation.
Failure and restructuring seem contagious. Other home furnishing complexes like Xinglong, Jinkailide, and Dongfang Jiayuan Lishuiqiao have either closed or withdrawn. In November, Beijing launched a furniture trade-in pilot program, which reportedly boosted participating businesses' revenue by at least 30%.
Meng Guoqiang and Liu Chen, secretary general of the Beijing Market Association Home Furnishing Market Branch, agree that the overall area of furniture stores nationwide is overly saturated. Over the past decade, the furniture industry enjoyed annual growth rates of 20–30%, even post-financial crisis. This led to constant expansion. By 2008, numerous stores opened across the country, recruiting both producers and distributors. Many manufacturers eventually pulled out, leaving distributors handling most of the sales.
American giant Home Depot abruptly closed all seven of its Chinese building materials stores in September. The world’s largest home improvement retailer stated it would focus on professional retail and online sales. Similarly, UK-based B&Q has been losing money in China for six straight years. Since closing a store in Nanjing earlier this year, its presence in China has shrunk from 63 to 40 stores.
Meng Guoqiang notes that domestic brands overlook these risks. They either overestimate their ability to dominate competitors or secure land at low cost through government incentives.
Red Star Macalline, for instance, had just 60 stores in 38 cities in December 2009. Within three years, it expanded to over 40 malls. By 2020, it aims to open 200 nationwide. Despite this ambitious growth, closures have occurred in recent years.
The downturn has intensified competition. New residential housing purchases are down, and social housing often bypasses the traditional sales channel. "Developers might build more pre-decorated units," Meng Guoqiang suggests. "Can home stores adapt by becoming distribution centers, logistics hubs, or large wholesale centers?"
E-commerce poses another challenge. During Taobao's Double 11 festival, daily turnover for home furnishings exceeded $1.2 billion. Red Star Macalline is expanding its online presence with a B2C platform, flash sales, and group buying initiatives.
However, Meng Guoqiang argues e-commerce’s impact is limited, focusing mostly on low-priced goods. Yet, trends suggest it could capture a larger market share.
Most home stores rely on rent and management fees. Rent is location-dependent, while management fees are sales-based. Revenue remains stable during peak seasons like May and October. Liu Chen emphasizes stores need to prioritize consumer satisfaction, enhance service rigidity, and explore integrated developments.
Merchants at Lanjing Lijia Home Plaza in Dazhong Temple reported improved business in October.
Consequently, the National Building Materials Home Furnishing Prosperity Index surged to 130.29 in October, climbing 9.47% month-over-month and 7.52% year-over-year. This marks the second-highest peak since the index's inception in March 2010, trailing only May 2010’s 134.9.
October also witnessed a sharp rise in furniture and building material sales. Nationwide, sales of building materials and home furnishing stores reached 142 billion yuan, a 20.28% jump from September. Year-to-date, however, sales fell 4.6% compared to the same period last year.
Liu Chen attributes this to a recovering real estate market and the trade-in policy stimulating delayed demand.
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