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CBI MARKET SURVEY: THE DOMESTIC FURNITURE MARKET IN THE EU

CBI MARKET SURVEY

THE DOMESTIC FURNITURE

MARKET IN THE EUPublication date: October 2009

CONTENTS

REPORT SUMMARY 2

INTRODUCTION 4

1 CONSUMPTION 52 PRODUCTION 16

3 TRADE CHANNELS FOR MARKET ENTRY 21

4 TRADE: IMPORTS AND EXPORTS 29

5 PRICE DEVELOPMENTS 39

6 MARKET ACCESS REQUIREMENTS 43

7 OPPORTUNITY OR THREAT ? 46

APPENDICES

A PRODUCT CHARACTERISTICS 47

B INTRODUCTION TO THE EU MARKET 50

C LIST OF DEVELOPING COUNTRIES 51

This survey was compiled for CBI by Searce

Disclaimer CBI market information tools : http://www.cbi.eu/disclaimer

Source: CBI Market Information Database URL: www.cbi.eu Contact: [email protected] www.cbi.eu/disclaimer

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Report summaryThis survey profiles the EU market for domestic or household furniture both in finished andsemi-finished form. The items covered are made of wood, metal, iron, plastic/syntheticmaterial, glass, cane, osier, bamboo, other materials or a combination of different materials.

Consumption The EU is the largest furniture market in the world. Total EU27 consumption was 80.1 billionin 2008. Average consumption per capita was 161, with Austria, Luxembourg andScandinavian countries spending most on furniture. After strong increases in 2007,consumption decreased in 2008 due to the global economic slowdown. An average annualincrease in consumption of 1.1% between 2004 and 2008, from 76.8 billion, included falls insome of the more mature markets, but significant increases by other countries, particularlynew Member States. The end of the house building boom coincided with the falling market in2008. Kitchen furniture sales have developed strongly as this has become a more focal part ofthe home, and the changing use of the home, particularly the home office trend, has furtherstimulated sales. Media coverage of interior design and home improvement has also continued.Future value sales will be mainly driven by: Growing importance of the home as a place to spend time and changing use of different

spaces within the home. The impact of technology within the home and the demand for more comfort. The impact of fashion in interior design coupled with frequent replacement of furniture. Multi-functional furniture items for small rooms, home office and for childrens rooms. Small and practical furniture focused on singles and on young people living at home.

ProductionIn 2008, the turnover of almost 100,000 EU27 furniture manufacturers was valued at 73.7billion, of which an estimated 75% was wooden furniture. Between 2004 and 2008, EUfurniture production increased by 0.9% per annum, but most countries experienced largedecreases in 2008 as export markets disappeared in the wake of the global economic

slowdown. Much EU production has been outsourced to other Member States in EasternEurope, as well as to other countries, particularly in Asia, but Europe still accounts for over37% of global production. Employment in the industry continues to fall, due to newtechnologies being introduced. Kitchen furniture and upholstered seating were the largestproduct groups in terms of production. The leading producer countries were Italy andGermany. Poland is increasingly important. Some major trends in EU production were: More e-commerce throughout the supply chain. Developments in market access outside of the EU. Consideration of developing an eco-label. More vertical integration, particularly up the supply chain. Greater co-operation between producers and sharing of skills and expertise. Growing importance of design at home and outsourcing of production.

Trade channelsMost furniture is supplied from manufacturers through importers/wholesalers or directlypurchased by the large retailers. In 2008, there were 125,000 furniture retail outlets in the EU,with around 450,000 employees. Furniture retailing has become more diversified with manytypes of outlets, varying from those stocking a special style of furniture to those carrying awide range of products with related accessories. Specialist furniture retailers represented 80%of total EU furniture sales. Small furniture shops are still strongly represented in Italy, Spain andthe new Member States, whereas franchised, chain stores and buying groups are dominant inFrance, Germany, the UK and the Netherlands.

Distribution is continuing to fragment, with a greater share increasingly being taken by non-

specialists e.g. DIY stores, hypermarkets and department stores. In addition, the Internet isstarting to become more influential in purchasing decisions. There is already much downwardprice pressure on furniture retailers, and this trend further accentuates this situation.


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ImportsThe EU is the second largest importing region, after NAFTA (USA, Canada, Mexico). However, itis the largest when allowing for intra-EU imports, representing a total of 11.4 million tonnesvalued at 32.4 billion. Germany was the largest EU importing country and represented 21% ofall EU imports by value (19% by volume). Between 2004 and 2008, EU27 domestic furniture

imports increased by an average 2.4% in value and 1% in volume. Of the leading countries,Austria, Germany and the UK were below the average increase, the rest were above.

Furniture parts, valued at 11.4 billion, was the largest group of imports by value and volume.Upholstered seating was the next largest by value. It grew from 4.6 to 5.4 billion between2004 and 2008. Other furniture was the next largest group, valued at 4 billion, although thisfigure may be understated as no data was available for other metal or plastic furniture. Thesethree groups represented two thirds of all imports. In 2008, 70% of EU imports came fromother EU countries. The leading supplier to the EU was Germany (14%), closely followed byItaly and Poland. Extra-EU (excluding developing) countries reduced their exports to the EU byan annual average of 28% over the period and accounted for less than 4% of furnituresupplies to the EU in 2008. This was partly explained by new countries joining the EU.

In 2008, EU furniture imports from developing countries were 3.4 million tonnes, worth 8.5billion. Between 2004 and 2008, the share from developing countries in total EU furnitureimports rose from 21% to 26% in value and from 24% to 30% in volume. 60% of rattanimports came from developing countries, and half of all non-upholstered seating. Thesignificance of China continues to grow. In 2008, it accounted for 4.6 billion of imports (14%of all imports and 55% of developing country imports by value), up by an annual average of17% since 2004. In volume terms, it represented 18% of all imports or 2 million tonnes (59%of developing country imports), up by an annual average of 12% since 2004.

ExportsBetween 2004 and 2008, EU exports increased by an annual average of 1.4% in value from

32.7 to 34.5 billion and by 0.9% in volume from 10.2 to 10.5 million tonnes. Much of thiswas due to significant increases particularly by Poland, Greece, Slovakia and Lithuania. Italywas the largest exporter, accounting for 22% of all EU exports. Three quarters of exports wereintra-EU exports. Germany received 18% of these exports. The USA, Switzerland and Russiawere the largest recipients outside of the EU. Furniture parts was clearly the largest productgroup, representing 12.2 billion, or 36% of all exports by value in 2008, followed byupholstered seating exports.

Opportunities for exporters from developing countriesChanges in consumption patterns for furniture offer opportunities. The market for self-assembly furniture is growing in certain segments, but exporters also need to ensure thatdesigns are innovative and take note of fashion changes in furniture. The increase in smallerhomes is also an opportunity for DC exporters. The demand for smaller-sized furniture itemsalso encourages good value products to be shipped from overseas.

Solid woods are becoming more popular instead of veneers and laminates. Importers arelooking for new types of solid wood, similar to light oak, cherry or darker woods. Bamboo hasbecome a popular material especially in eco-design furniture, as it grows very quickly. Bamboois sometimes combined with polystyrene and aluminium that can be recycled. There are goodopportunities for such eco-design furniture concepts.

Contemporary furniture styles now dominate the market. The emphasis is on quality, flexibilityand value. However, it is important that the item retains its authenticity by using specialwoods, materials, designs, skills in terms of craftsmanship or in finish. New furniture items arealso more in demand due to the growing use of technology in the home. This creates demand

for new items such as kitchen cabinets and storage units.


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Introduction

This CBI market survey profiles the domestic furniture market in the EU. The emphasis of thissurvey lies on those products, which are of importance to developing country suppliers. The

role of and opportunities for developing countries are highlighted.This market survey discusses the following product groups: Upholstered seating Non-upholstered seating Dining and living room furniture Kitchen furniture Bedroom furniture Home office furniture

Other furniture Furniture parts

For detailed information on the selected product groups please consult Appendix A. Moreinformation about the EU can be found in Appendix B.

CBI market surveys covering the market in specific EU countries, specific product(group)s ordocuments on market access requirements can be downloaded from the CBI website. Forinformation on how to make optimal use of the CBI market surveys and other CBI marketinformation, please consult From survey to success - export guidelines. All information can bedownloaded from http://www.cbi.eu/marketinfo Go to Search CBI database and select yourmarket sector and the EU.


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1 Consumption

1.1 Market size

Despite significant falls in the market values of the EU and NAFTA regions, global sales ofdomestic furniture broadly maintained their value due to increases elsewhere in the world.Global sales valued approximately 220 billion in 2008, of which the EU was the largest area,accounting for 80 billion or 36% of the global market. This was followed closely by theNAFTA zone (USA, Canada and Mexico) with combined sales of 78 billion, Asia with 50billion and Latin America 5 billion. Within Asia, China accounted for 45% and Japanaccounted for 30% of sales. Brazil represented two thirds of all sales in Latin America.

Per capita consumption of 161 in the EU was lower than the NAFTA zone, which was closer to 180. This compared with consumption in Latin America of approximately 8 per capita. TheEU figure hides wide differences between countries, ranging from 301 in Austria to 38 inPoland. 10% of the value (14% of the volume) of EU sales came from extra-EU imports.

Global demand will increase further in 2009, despite the economic slowdown. This increase isprimarily driven by increasing affluence in emrging markets in Asia and Latin America, but alsoby population increases, particularly in Asia. Growth should be even stronger in 2010 as the EUand NAFTA economies emerge from the global financial crisis.

Table 1.1 EU consumption of domestic furniture 2004-2008, million 2004m

2006m

2008M

Aveannual %change

Population(million)

Consum-

ption

percapita

Households

(000s)Occu-pants

per h/h

Total 76,760 79,889 80,111 1.1 496.3 161 206,303 2.4 Germany 18,938 19,156 18,415 -0.7 82.3 224 39,122 2.1Italy 13,394 13,499 13,356 -0.1 59.4 225 26,400 2.2United Kingdom 10,259 10,865 10,553 0.7 61.0 173 26,750 2.2France 8,575 9,016 9,641 3.0 63.6 152 27,045 2.3Spain 5,951 6,430 6,346 1.6 44.9 141 15,600 2.8Netherlands 3,502 3,706 3,625 0.9 16.4 221 7,091 2.3Austria 2,308 2,439 2,502 2.0 8.3 301 3,410 2.4Sweden 2,184 2,235 2,427 2.7 9.1 267 4,279 2.1Belgium 2,011 2,166 2,198 2.2 10.6 207 4,502 2.3Greece 1,399 1,462 1,520 2.1 11.2 136 3,800 2.8Poland 1,280 1,318 1,460 3.3 38.1 38 13,865 2.8Finland 1,083 1,244 1,389 6.4 5.3 262 2,452 2.1Denmark 1,200 1,230 1,323 2.5 5.5 241 2,548 2.2Portugal 1,219 1,250 1,223 0.1 10.6 115 3,730 2.8Romania 740 830 987 7.5 21.5 46 6,820 3.2Czech Republic 562 622 668 4.4 10.3 65 4,574 2.3Ireland 549 625 584 1.5 4.4 133 1,430 2.9Hungary 449 511 513 3.4 10.1 51 4,260 2.4Bulgaria 264 302 344 6.8 7.7 45 2,360 3.0Slovakia 175 190 212 4.9 5.4 39 2,045 2.8Slovenia 171 190 204 4.5 2.0 102 750 2.7Luxembourg 121 132 135 2.8 0.5 270 195 2.5Lithuania 102 116 121 4.4 3.4 36 1,320 2.7Estonia 93 108 111 4.5 1.3 85 627 2.3Latvia 97 110 110 3.2 2.3 48 930 2.6Cyprus 87 92 97 2.7 0.8 121 250 3.2Malta 47 45 47 0.0 0.4 117 148 2.7Source: Euromonitor, Mintel, National Trade Associations, Trade Estimates (2009)


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The EU market for domestic furniture shrank by approximately 2% in 2008, compared to thepositive performance in 2007, when the market value reached 81.7 billion. Nevertheless,over the review period between 2004 and 2008, the market still registered an annual averageincrease in value of 1.1%. Demand for furniture has been sustained by increasing livingstandards, a house-building boom around much of the EU, media interest in home interiorsand a wider choice of furniture styles on sale in a wider range of retail outlets.

The top five countries Germany, Italy, the UK, France and Spain dominated the EU market.In 2008, their combined value was 58.3 billion, or 73% or the total. This compared with amarket value of 57.1 billion in 2004, representing over 74% of the EU27 total. The Germanand Italian markets were lower in 2008 than 2004, whereas the French market hasexperienced above average growth over the period. The market in Spain was also growingstrongly up to 2007, but it fell significantly in 2008.

Grow th c lus te r s The value of the 12 most recent new Member States was 4.9 billion in 2008, or 6.1% of thetotal EU market. This has increased from 4.1 billion in 2004 or 5.3% of the market. Thelargest increases were experienced in the newest countries, Romania and Bulgaria. Slovakia

was also growing strongly, primarily as this market was less exposed to the difficulties of 2008than many other countries. Lower levels of per capita consumption suggest that future growthopportunities will exist in many of these countries.

The Scandinavian countries have also performed well above the EU average, particularly theFinnish market. This area has some of the highest per capita levels of consumption, as well ashigher furniture prices. The continuing strength of this part of the EU is underpinned by astrong design reputation in the manufacture of furniture, which is supported by localconsumers here. It is also underpinned by a higher priority to interior design here thanelsewhere.

Consumpt ion by p roduc t g roup

The economic downturn has affected the different product groups. For example with l i v i ng r o om f u r n it u r e , consumers have cut back on large value items such as sofas. Manypurchases were made on credit and now consumers are unwilling or unable to take out credit.However in the longer term this group will benefit from delayed demand. The living room tendsto be the most important room in the house for most people. It is the main place in the homefor socialising and communication. Changes in the use of the home (see later section ontrends) will also have a significant impact on the type of products purchased in the future.

Nevertheless, sofas have become more comfortable and possess additional functions, such asadjustable heights, movable arms and reclining features. More technology in sofas and chairsincludes holders for drinks and platforms for laptops. Leather is a popular material due to itsdurability. Sofas are heavily used and a sometimes replaced when people prefer somethingnew, even though it may not have worn out.

In d i n i n g r oo m f u r n i t u r e , the trend away from traditional dining suites continues,particularly formal suites of a traditional style, as homes are getting smaller, but quality self-assembly functional dining room furniture at lower prices is improving. Dining has becomemore casual and families tend not to sit down together for formal meals. Other uses are madeof this space, depending on the type of people living in the home. Some homes combine livingrooms with dining areas. Other homes combine the kitchen with the dining area. Many diningrooms are now used as a workspace.

Older consumers still prefer to eat at a table in a more formal way.However, in some homes,the dining table is returning as eating and entertaining at home have become more important.This is helped by the growing choice in types and styles of tables. Lower priced self-assembly

tables (and chairs) tend to be more contemporary in style, but those products in the mid-


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market made of natural wood are demanded in a variety of woods, including oak, maple, pine,birch, ash, alder, cherry or tulip.

After years of strong growth, k i t ch en f u r n i t u r e has suffered due to the fall in the housingmarket and lack of consumer confidence in spending large sums of money. Consumers preferto delay making a purchase rather than trade down, as the kitchen is an important room,

which makes a statement about the homeowners lifestyle. The kitchen has grown inimportance. It is changing from the place where meals are prepared to a more sociable room.It is a room where high expenditures can be involved. Some consumers have been buyingindividual kitchen cabinets, some choose to wait and buy a complete new kitchen suite, whileothers buy freestanding units because of their flexibility.

Furniture in the kitchen has to be well designed, as storage space has to be maximised. Inaddition, many consumers are demanding some form of customisation in design to make itreflect their own style and design tastes. More men are becoming interested in kitchen design.This is partly due to an increase in the number of men who like to cook. Men are also attractedby the number of hi-tech gadgets that are now found in many kitchens.

B ed r o o m f u r n i t u r e is largely a replacement market. It is not directly linked to the fortunes ofthe housing market. Here, consumers will trade down in difficult economic times. In thebedroom a similar trend is occurring as in other rooms in the house. There is more demand forfreestanding items because of their flexibility. Individual items such as bedside tables or smallwardrobes are being purchased rather than larger investments in entire suites. The bedroomprovides a relaxing environment as well as a place to sleep. However for younger people, thebedroom has become the main living area. Most have a TV and a computer in their bedroom.It is where they communicate with their friends. Many young people also eat in their bedroom.

A similar principle applies to b a t h r o o m f u r n i t u r e , where individual cabinets continue to bepurchased rather than making an investment in a new bathroom suite. Future changes will seea closer integration of the bedroom and bathroom as the importance of this as a private space

increases.Ot h e r f u r n i t u r e includes furniture in halls, landings and bathrooms, and other small pieces ofoccasional furniture such as side tables, shelving units and furniture for storage. Shelving hasbecome more intelligent, as well as open. It has developed both horizontally and vertically, asit now fits any space, no matter how restricting or unusual. Low sideboards are becomingfashionable again in some households, sometimes as design statements, but also because oftheir storage capabilities. Other furniture also includes the hom e o f f i ce segment. This hasslowed but continues to grow as the number of people working from home increases.Consumers will trade down on this sort of furniture, as it is less likely to be on public view athome. Alternatively, consumers are using other tables or surfaces in the house rather thaninvesting in a specific home office desk. New designs in home office furniture are morecompatible with other furniture within the home.

Figure 1.1 shows how the EU market, valued at 80.1 billion was broken down. Upholsteredfurniture was valued at 21.4 billion; dining and living room furniture was 20.6 billion;kitchen furniture was valued at 17.5 billion; bedroom furniture was 11.9 billion and otherfurniture was valued at 8.7 billion. These figures hide wide differences between countries interms of the relative size of each product group. See the individual country reports for furtherdetail. Broadly speaking the markets for upholstered furniture and kitchen furniture have beenincreasing, while dining room furniture has been decreasing.

Nevertheless, for example, upholstered seating is a product group which in consumer terms isusually part of living room furniture. Some countries combine figures for living room and diningroom furniture. In addition, the category other furniture is very broad and will include many

items that are part of the other categories. However, what constitutes other furniture willvary from country to country.


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Figure 1.1 EU domestic furniture consumption by product group,% value, 2008

Kitchen21.8%

Other10.9%

Bedroom14.9%

Dining &Living25.7%

Upholstered

26.7%

Source: Eurostat (2009)

Marke t ou t l ook The downturn in this market experienced in 2008 will deteriorate further in 2009 as the globaleconomic downturn has had a major impact on consumer confidence and spending power.Furniture is one of the product groups that consumers find easiest to defer if their budgets arerestricted. The downturn has also affected the housing market across Europe. Moving home isone of the main triggers for purchasing new furniture. As consumers have stopped movinghome, this source of purchase has disappeared. In addition, there are much fewer first timebuyers coming to the market. These consumers usually own no furniture and normallyrepresent the group that purchases most new furniture.

The bright spot is that as this downturn has now lasted for over one year, there will bedemand building up. This should mean that once the economic recovery is more certain thatsales should return quite strongly. Consumers are prepared to hold onto old, damaged or wornout furniture for some time, but not indefinately.

1.2 Market segmentation

The most commonly used means of segmenting the market is by room. It is used widely in thetrade, partly because furniture retailers tend to present furniture ranges in the context ofwhere they will be used by building room sets so that consumers will more easily visualisehow the item of furniture will appear. Two other forms of segmentation are illustrated here tohighlight the benefit of looking more closely at different consumer types.

Demographic segmentationThe composition of a household is usually a good indicator of the type of furniture that ispurchased. In particular, the presence of children in a home and their age will determinewhether there will be demand for childrens bedroom furniture. This is a bouyant segment as itchanges more frequently than furniture in adult bedrooms. Other demographic variables arealso strong indicators of furniture demand. For example, young couples will more likely buycontemporary but lower priced furniture, while middle-aged consumers are more likely topurchase more expensive furniture, with more traditional or classic design styles. At the otherend of the age spectrum, retired people are less interested in replacing furniture.

Each country has its own demographic characteristics. This form of segmentation is best usedon a country by country basis. Using an EU average figure will hide important differences

between countries. The following Table 1.2 illustrates the importance of demographicsegmentation in the UK. It highlights the differences between men and women, the differences


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between age groups, and the differences between different social classes in terms of thefeatures which are important when choosing a new kitchen. This helps manufacturers todetermine the best prospects for different kitchen types.

Table 1.2 Features important when choosing a new kitchen in the UK, 2009, %Clever

storage thatmaximisesspace

Built-in

lighting inunits & overworktops

Made from

naturalmaterials (egwood,granite)

Units with

built-instroageorganisers

Units with

built-inentertainment(TV, WiFi,DVD)

All 62 42 34 33 11

Male 53 39 33 28 11Female 71 45 34 39 11

16-34 years 52 38 28 25 1435-64 years 68 45 37 38 9

ABC1s* 65 44 37 34 10

C2DEs 56 39 27 32 12Source: Mintel (2009)* AB=23% of population, professional, senior and middle management; C1=28% of the population,junior management and non-manual workers; C2=21% of the population, skilled manual workers;D=18% of the population, semi-skilled and unskilled manual workers; E=10% of the population,unemployed or otherwise dependent on the state.

Hence the key demographic groups for clever storage and for built-in lighting in units arewomen, aged 35+, ABC1 households with children. The key groups that prefer kitchenfurniture made from natural materials are ABC1s aged 35+.

Segmentation by style of furnitureThe above consumer groups also have preferences for different styles of furniture. For

example, you may expect that younger consumers may be more interested in modernfurniture. You may expect older consumers to have a greater preference for traditional orclassic designs of furniture, while people who live in the countryside may have a preference forrustic styles. Furniture styles are usually classified as follows, and photographic examples ofsome of these styles can be seen at the end of this section:

o Classical inspired by traditional decoration, often ostentatious, highly decorated,rococco, using the finest wood, panelled, engraved, polished, carved.

o Rustic inspired by the country, using natural woods, with little treatment orelaboration, much use of pine, special refinements by the craftsman making it.

o Modern simple, functional, large scale, quite sophisticated and based on the latesttrends.

o Natural basic forms, rounded corners and edges, natural wood as well as natural

fibres, stone, ceramic and other materials. Simple and unaffected style.o Avant guard representing the latest fashion, also known as designer furniture, wide

variety of materials, product of interpreting what is happening in the world.o Minimalist minimal expression, simple and practical forms, straight lines, multi-

functional, combinations of materials.o High-tech free style, solid and neutral colours, straight lines, much metal and glass,

without accessories, only the essential.o Ethnic oriental, Asian and African, non-western, colonial, exotic, exhuberant, great

diversity in forms, exotic materials, colourful, textures.

PhotographsThe photographs on the following pages show the different kinds of interiors typical to each

furniture style, as described in this chapter. They are ranged from classic to modern and someof them show combinations of styles.


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1. Classic style 2. Colonial style

(Couch mixed with metal table & leather chair) (Dark wooden bed & cabinet and white pouf)

3. Colonial style 4. Country-romantic style(Textile couch with leather chair & pouf) (Whitewash/Upholstered seats & wicker chairs)

5. Country style 6. Contemporary style(Dark wooden kitchen in bright open living) (Childrens favourite colour with fantasy prints)


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7. Contemporary style 8. Contemporary style(Dark wooden bed with subtle decorations) (Multi-functional chairs in fashionable colours)

9. Contemporary style 10. Contemporary Modern style(Open living space) (Open structure and open shelving)

11. Modern style 12. Modern style(Home cinema with flexible relaxing couch) (Integrated furniture and integrated woods)

Photo courtesy: Imm/Cosmit/Shutterstock


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1.3 Trends

A wide range of factors are impacting on how demand for domestic furniture is changing. Thiscan range from simple changing tastes for particular furniture designs to more fundamentallifestyle changes that determine the type of furniture that is required in homes.

Merg ing o f l i v i ng a reas The trend in the main living area of combining cooking, eating and living has been developingfor some time. This has been a result of a number of factors, partly the increasing importanceof the home, and partly economic as people choose to spend more time at home for costreasons. This includes more entertaining at home. This trend of merging living areas can beseen with home office space being shared with either living room or dining room space. Morerecently, this trend has extended to the bedroom and bathroom areas. People are choosing tocombine their bathroom and bedroom space into a single private zone for relaxation ratherthan just for sleeping, or just for bathing.

This desire for flexibility and the blurring of divisions between room spaces boosts the demandfor freestanding furniture, as it can be moved round to meet shifting needs. Many pieces such

as cupboards and tables are already comfortable in a number of different room environments.

More fem in ine fu rn i t u re shapes Much furniture, especially upholstered furniture is becoming more feminine overall. Roundedshapes confirm the desire for people to enjoy a more cosy and relaxed feel, particularly forseating. Part of this desire is practical, but there is also more aesthetic reasons, as consumersmove away from harder and colder, purely functional designs. Many wall cabinets also have asofter and relaxed feel with more rounded corners. Consumers now expect better function butwant furniture to look more comfortable and inviting. This is also reflected in the growingimportance of lighting to create moods specific to different parts of the home. Much lighting isnow built into some pieces of furniture, while much is freestanding to offer a contrast to otherfurniture items.

Men show ing m ore i n te rest Traditionally it has been women that have expressed more interest in home furnishings. Thatis changing, partly because there are increasing numbers of men living alone who now have tomake decisions on interior design. In addition, men are showing more interest in cooking. Theysee it as part of their role as a host when entertaining friends. They are also attracted tofurnishings with technical refinements, both in the kitchen and in the living room.

Eco- f r i end ly fu rn i t u re con t i nues to g r owEco-friendly furniture is in demand in all sectors. Renewable raw materials and the possibilityof recycling the materials used are important purchase criteria for a growing number ofconsumers. In some countries there are eco-labels on specific furniture items made fromsustainable sources. In some cases, furniture retailers identify which of their products meetthe eco-friendly criteria. Bamboo is becoming more popular as a material due to this trend.

As well as the increased demand for furniture from sustainable forest sources, there is alsoincreased demand for recycled furniture, much of which can be re-made in individualisedstyles. However, as a contrast, environmental concerns are discouraging some consumersfrom replacing furniture. They think that it is more responsible to extend the life of products,particularly those that cannot be recycled, rahter than purchasing new furniture.

Colour and s t y l ing White remains the dominant and most preferred colour. While there have been various mini-trends involving other colours, white continues to be the most popular. Styles are constantlychanging and for 2009 baroque ornamentation as the design is upholstery materials is the

trendsetting style.


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Trad ing u p Despite the economic downturn, consumers are becoming more demanding. Many consumerschoose to postpone a purchase rather than purchase an inferior item. Furniture hasincreasingly higher specifications at lower prices. Consumers want important pieces offurniture to be a reflection of their own individual taste and are prepared to pay extra forquality. For example, in kitchens interior fittings and lighting, as well as premium worktop

surfaces contribute to pushing up transaction values. This trend is also boosted by the growingnumber of 45-64 year olds who tend to prefer to purchase on the basis of quality rather thanprice.

Grea te r use of th e I n te rne t Furniture is now one of the most widely purchased household goods online. The way in whichthe Internet is used is changing. In the UK for example, 26% of Internet users say theybrowsed furniture online and then bought it online, whereas 21% said they browsed onlinethen bought instore. A further 20% said they browsed and bought instore. 18% had notbought online, while just 3% said they browsed instore and then bought online. This is apowerful illustration of just how important the Internet has become for furniture purchasing. Itis also very important as an information source and a communication medium for design ideas.

More use o f p ro fess iona l des igners Consumers are increasingly involving professional designers to help them choose furniture.This is particularly the case for high value items such as fitted kitchens or bedrooms, but theyare also being used to help with other aspects of interior design. This might include offeringadvice as to the best combination of other furnishings and decorations that might fit well witha particular dining table or sofa that the consumer likes. Many consumers want to be moreinvolved in the design process to express their own individuality. They are not afraid to alsoask for professional advice.

I m p rovem en ts i n the recession If a consumer is unable to buy a new piece of furniture, some may choose to adapt an existing

piece, or make some other change to the room as a way of refreshing its look without highexpenditure. Some examples of this trend include changing door frames, door knobs andhandles. Other ideas would be to re-upholster a chair or changing a small but central featuresuch as a coffee table.

Media in f luence deepensThe powerful role of the media in determining interior design and furniture choice hasextended into most new Member States. Media coverage of home design was in part fuelled bythe property boom. Despite the fact that this boom has ended and less people are movinghome, the influence of the media continues. There has been a subtle shift in emphasis tofocusing on getting the best value out of improving your home on a limited budget. Althoughfunds are limited for many people, the aspiration for living in a nice home remains strong.

Em ergence o f specia l it y r oom sAs the home has become more important and an increasing number of activities are carriedout within the home, some rooms are being used as speciality rooms. This will tend to reflectthe interests of the main homeowner. For example, if the person is a very enthusiastic TVviewer he will convert a room into a home cinema. Alternatively, a room may be convertedinto a technology centre based on computers and games, or it could be a sports room, eitherfor playing or watching sport. Music is another important basis for theming a room. This willextend to the type of decoration used and type of furniture required. Any enthusiast with aparticular hobby can design a room to adapt to their special interest.


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1.4 Opportunities and threats

The leading trends tend to come from Western Europe. The markets in eastern EU countriesare not as sophisticated yet, and opportunities still exist here for more traditional, basicfurniture styles. However, the pace of change and globalisation will mean that these parts ofthe EU will catch up with Western and Northern EU countries quite soon. In most EU countries,

there is a long-term shift from traditional to contemporary style furniture. This has made thefurniture market increasingly diversified in terms of the different styles available. In a maturemarket with growing supplies from Eastern Europe and China, exporters should seekopportunities in market niches. Here there is less competition and they can offer added valueby furniture that is unique to their country.+ More opportunities will be found for modern styles of seating, kitchen furniture and

occasional pieces of furniture, such as cabinets, storage units and small tables.+ While there is still demand for co-ordinated suites of furniture, more growth will come from

freestanding pieces, as consumers look for flexibility in how a room is used and arranged.They also want to express their individualism over the design of their home.

+ Changes in consumption patterns for furniture offer opportunities to exporters fromdeveloping countries. The market for self-assembly furniture is growing in certain

segments. This is good in terms of ease of transportation for exporters, enabling costefficiencies, but exporters also need to ensure that designs are innovative and take note offashion changes in furniture.

+ The large immigrant and now native population in most western EU countries are interestedin some of the styles and designs of furniture they were familiar with from their countries oforigin. In particular, there are sizeable sub-segments in many countries for oriental orAfrican furniture styles in terms of living and eating arrangements.

+ The increase in smaller homes is also an opportunity for DC exporters. The demand forsmaller-sized furniture items also encourages good value products to be shipped fromoverseas.

+ The eco-trend will provide opportunities for those exporters that are able to demonstratethat their products come from sustainable forest sources.

+ Solid woods are becoming more popular instead of veneers and laminates. Importers arelooking for new types of solid wood, similar to light oak, cherry or darker woods.+ Bamboo has become a popular material in contemporary style furniture but also in eco-

design furniture, as bamboo grows very quickly. Bamboo is sometimes combined withpolystyrene and aluminium that can be recycled. There is a good opportunity for such eco-design furniture concepts.

- The ageing population will bring short term opportunities in specific product categories, butmore broadly the over 65 age group spends less on furniture so there will be lessopportunities in the longer term. However the growth in the 45-64 age group will stimulateopportunities for higher quality furniture items that offer excellent value as well as goodquality.

- A threat comes from being unable to meet very short delivery times, and also from notbeing able to change the specification on a product at short notice. Fast delivery (accordingto sample), good packaging, and after-sales service are taken for granted now by all majorbuyers.

- Although some lifestyle changes are gradual, enabling exporters to have time to adapt tothe changes in demand that result from them, a significant part of the market has torespond to the short term whims of what is fashionable. For example, a particular item offurniture may be featured on a home interest programme, which creates high immediatedemand. Retailers need to be able to call on their supplier/s to deliver these productsimmediately, otherwise the opportunity would be lost.

Equally any of these trends can be an opportunity for one exporter, but a threat to another.The outcome of this analysis will depend on the specific situation of each exporter. EU buyersare not always loyal to particular overseas suppliers, so you may lose out to a supplier from

your own country or neighbouring country.


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1.5 Useful sources

See CBI market surveys covering the market in individual EU countries for contact details onimportant sources in each country.

At an EU level, the European Furniture Manufacturers Federation (UEA) -

http://www.ueanet.com - occasionally publishes market information. A new organisationcalled the European Furniture Industry Confederation - http://www.efic.eu - formed in 2006featuring seven UEA members.

The European Federation of Furniture Retailers - http://www.fena-furniture.com - alsofeatures information.

The European Union website - http://ec.europa.eu/enterprise/furniture/index_en.htm - hasa section on the furniture industry. Further information on furniture specific to forest-basedindustries appears on the same website -http://ec.europa.eu/enterprise/forest_based/furniture_en.html.

The World Furniture Confederation - http://www.worldfurnitureconfederation.com -provides information on the industry, while a very good source of pan-European informationon furniture can be found at the portal http://www.furniture.eu.

The latest information on trends in home interior styles and furniture can be found at thesites of the International Furniture Fair in Italy - http://www.cosmit.it - and at the moretrendfollowing fair in Germany - http://www.imm-cologne.de.

Information is available from commercial research companies, sometimes at a cost. Themain sources are Csil, the Furniture Industry Research Institute in Milan -http://www.csilmilano.com or http://www.worldfurnitureonline.com, Euromonitor -http://www.euromonitor.com, Mintel - http://www.mintel.com - and MSI Reports -http://www.msi-reports.eu/en/index.asp - with particular focus on kitchen and bathroomfurniture.

Although Eurostat - http://epp.eurostat.ec.europa.eu - does not provide information onconsumption, figures for apparent consumption can be calculated by adding import andproduction figures and subtracting exports.


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http://www.ueanet.com/http://www.efic.eu/http://www.fena-furniture.com/http://ec.europa.eu/enterprise/furniture/index_en.htmhttp://ec.europa.eu/enterprise/forest_based/furniture_en.htmlhttp://www.worldfurnitureconfederation.com/http://www.furniture.eu/http://www.cosmit.it/http://www.imm-cologne.de/http://www.csilmilano.com/http://www.worldfurnitureonline.com/http://www.euromonitor.com/http://www.mintel.com/http://www.msi-reports.eu/en/index.asphttp://epp.eurostat.ec.europa.eu/http://epp.eurostat.ec.europa.eu/http://www.msi-reports.eu/en/index.asphttp://www.mintel.com/http://www.euromonitor.com/http://www.worldfurnitureonline.com/http://www.csilmilano.com/http://www.imm-cologne.de/http://www.cosmit.it/http://www.furniture.eu/http://www.worldfurnitureconfederation.com/http://ec.europa.eu/enterprise/forest_based/furniture_en.htmlhttp://ec.europa.eu/enterprise/furniture/index_en.htmhttp://www.fena-furniture.com/http://www.efic.eu/http://www.ueanet.com/


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2 Production

2.1 Size of production

Global production of furniture was valued at over 270 billion in 2008, of which approximately 200 billion was domestic furniture as defined in this survey. The EU27 accounted for 37% ofglobal production, a lower proportion than in 2007, but still the largest furniture producingregion in the world by some distance. The Asia zone was the fastest growing area, and hasnow overtaken the NAFTA area in terms of production value. It now accounts forapproximately 28% of global production. Within this, China (55% of all Asian production or15% of global production) continued to grow while the EU and NAFTA regions contracted in2008. Japan accounted for a further 20% of all Asian production.

The NAFTA area covering the USA, Canada and Mexico accounted for 26% of globalproduction. This was dominated by the USA (23% of global production). This region isdeclining in importance in its share of global production. Domestic furniture production in LatinAmerica was valued at approximately 4.5 billion or 2.3% of global production, two thirds ofwhich was made in Brazil. Other non-EU European countries accounted for 2.8% of production,1.3% was from Oceania and 0.7% was made in Africa. The top 25 furniture-producingcountries accounted for 90% of world production. Out of them, 13 countries are European,seven are Asian, four are American and one is from Oceania.Table 2.1 EU production of domestic furniture, 2004-2008, million

2004value

2006value

2008value

Average %change in

value0408

Number ofcompanies

2006

Number ofemployees

2006

Total EU 71,073 74,923 73,727 0.9 131,642 999,155

Italy 14,858 15,432 15,434 1.0 25,799 119,499

Germany 13,001 13,940 14,870 3.4 8,878 123,837Spain 6,608 6,674 6,801 0.7 18,021 108,326France 6,930 6,759 6,708 -0.8 18,220 72,893United Kingdom 8,880 8,911 6,521 -7.4 6,211 78,670Poland 3,434 4,160 4,629 7.8 11,452 133,204The Netherlands 1,963 2,214 2,074 1.4 3,190 11,658Sweden 1,745 1,866 1,999 3.5 2,895 14,512Belgium 1,862 1,947 1,905 0.6 2,186 12,949Austria 1,858 2,094 1,896 0.5 3,398 28,255Denmark 1,943 2,014 1,842 -1.3 805 14,683Romania 969 1,203 1,200 5.5 3,135 85,034Czech Republic 1,181 1,268 1,148 -0.7 4,047 31,143Finland 876 889 1,009 3.6 1,342 6,935

Greece 667 755 889 7.4 6,643 10,603Portugal 969 968 843 -3.4 6,832 39,734Hungary 682 830 821 4.7 3,164 17,397Slovenia 676 826 814 4.8 571 8,986Slovakia 593 656 693 4.0 281 13,385Lithuania 289 347 440 11.1 1,151 19,948Ireland 334 340 345 0.8 348 4,241Estonia 235 256 287 5.1 491 8,976Bulgaria 191 225 256 7.6 1,476 22,426Latvia 121 140 109 -2.6 547 10,218Luxembourg 89 91 88 -0.3 39 150Cyprus 78 81 76 -0.6 420 993Malta 41 37 30 -7.5 100 500

Source: National Statistics Offices, Trade Associations, Eurostat (2009)


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The negative trend in 2008 was due to a dramatic decline in the production of furniture inalmost all the EU27 Member States. The crisis generated a weak global demand that resultedin less production and exports for the EU27 furniture manufacturers. All the major furnitureproducing countries faced the crisis and the recession by contracting their production. In June2009, the European Furniture Manufacturers Association requested additional measures fromthe EU and national governments to support the industry during the financial crisis, as a result

of a further fall in production of between 20% and 50% in the first quarter of 2009.

Despite the strong contraction in 2008, the EU industry still managed to register a smallpositive increase in value between 2004 and 2008. There have been changes in thecomposition of production over the period, as kitchen furniture accounts for an increasingproportion of production. Other key points include the fact that 40% of all production wasexported, of which approximately 80% was exported within the EU. Italy, Germany and Polandwere the largest exporters.

The top five producing countries (Italy, Germany, Spain, France and the UK) represented 68%of total EU production value in 2008, compared to almost 71% in 2004. Much of this can beexplained by the large decrease experienced by the UK furniture industry. The overall trend is

explained by the continuing growth of the furniture industries in Eastern Europe. Significantparts of German and Italy production have been outsourced there. The 12 new Member Statesaccounted for over 14% of EU production value in 2008, compared to less than 12% in 2004.This grouping was not immune from the global economic slowdown and many of thesecountries experienced decreases in 2008. Lithuania, despite being a small country, was thefastest growing producer.

The composition of furniture production is changing. In 2008, kitchen furniture represented thelargest production segment, followed by upholstered seating. Although Eurostat has notprovided information on upholstered furniture, this is estimated to be the similar in size to thevalue of kitchen furniture production, as highlighted in Figure 2.1. The share of productionaccounted for by furniture parts has decreased in 2008, indicating a higher proportion of

finished products and more outsourcing of parts.Figure 2.1 Production of furniture in the EU 2008,

as % of total value

Other9.0%

Kitchen22.4%

Bedroom12.4%

Dining andliving11.2%

Non-upholstered

5.8%

Rattan0.5%Parts

17.1% Upholstered21.6%

Source: Eurostat (2009)

A larger proportion of furniture parts were produced in the new Member States. Although theproduction value of all types has increased since 2004, with the exception of furniture parts,upholstered seating and rattan furniture, the share of production accounted for by bedroomand dining and living room furniture was also marginally down.


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The furniture industry is concentrated in one or a few particular areas in each country. InGermany the main areas are North Rhine-Westphalia, Bavaria and Baden-Wrttemburg. InItaly two thirds of furniture suppliers are in the Lombardy and Pesaro regions. Most Frenchsuppliers are located in the northern regions (West/Vende/Brittany, le-de-France andNormandy) and the southern Rhne-Alpes region. Spanish furniture suppliers are mostlyconcentrated in the Valencia, Catalonia, Basque and Murcia regions.

2.2 Trends

The EU furniture industry has experienced its worst year in recent history. All indications arethat 2009 will also be another year of contracting production. Although it is likely to show asmall recovery in 2010, the engine of growth for the global industry will continue to shift toAsia, as well as some other notable areas such as Brazil. Many of the trends apparent in theEU are increasingly based on survival strategies, rather than growth strategies. However, thisis not a universal generalisation.

Outsou rc ing Outsourcing has been a feature of EU furniture producers for a number of years. While there

has been a transfer of some production from some of the more developed Western EU MemberStates to newer Member States in the east, the overall picture has been a transfer to Chinaand some other developing countries, particularly in Asia. This trend has continued, althoughthe rate of growth in imports from China is slowing down. This reflects increasing costs inChina and a strengthening of the Chinese currency, as well as improving levels of quality andcompetitiveness from other countries.

Deve lopment o f eco- labe l There has been some discussions within the EU industry about an EU eco-label for furnituredue to the high levels of consumer interest in sustainably produced furniture. The difficulty hasbeen in the fact that an eco-label would most readily lend itself to wooden furniture, whilemanufacturers of metal or plastic furniture (or composite furniture of a number of materials)

would be disadvantaged as a consequence. The preference would be for a label that applies toall types of furniture, but the practicalities of this have yet to be worked out.

Deve lopmen t s i n th e supp ly cha in The furniture trade is increasingly globalised and new distribution systems are taking this intoaccount. Two thirds of all companies now procure products electronically, although small firmslag behind the larger ones. There is an increasing trend of companies using the same softwareplatforms. One third of manufacturers allow their customers to order goods electronically.

Design deve lopmen t s As outsourcing of production continues with manufacturers finding partnerships with otherproducers in lower cost economies, or with producers with different skills, outsourcing ofdesign is not taking place to the same extent. This is increasingly the central value of abusiness. Consumers pay for innovation and good design. Manufacturers are also making moreserious efforts to protect their designs from copying, and taking legal measures to minimisedesign theft. Three quarter of all companies use computer-aided design, but less than 30%use computer-aided production.

More s tanda rd i sat i on Standards continue to be developed and improved for the production of furniture. These relateprimarily to strength, durability and safety. As well as the issue of quality and public safety, itis considered that the existence of a robust set of standards to which furniture producers mustcomply, this will also provide a point of competitive advantage to those non-EU producers thatdo not adhere to such robust standards.


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Marke t access deve lopments While access to the EU for furniture importers is relatively liberal, there have been importantdevelopments in cooperation with the European Commission to improve EU furnituremanufacturers access to key export markets. Trade barriers have already been removed inmarkets such as Argentina, Turkey and Japan. While barriers in the area of sanitary andphytosanitary measures have been a focus point for the EU for some time, the needs of small

and medium sized enterprises in relation to the increasingly important topic of access to rawmaterials when accessing neighbouring markets is also on the agenda.

Shar in g best p ract icesThe EU industry continues to cooperate more fully and across a broader range of topics. Thishelps in the overall competitiveness of the industry, as well as encouraging innovation. Thekey areas for sharing are new product development, cooperation with other companies,outsourcing, skills and competencies development, electronic data management and newapproaches for distribution.

Manu factu r e r s as re t a i l er s This is already a well-established practice in many countries, but the process continues to

develop and expand. As well as being able to talk directly to consumers, it enablesmanufacturers to control more of the supply chain and better plan their productionrequirements.

2.3 Opportunities and threats

+ While DC exporters have in many cases found opportunities in the lower marketsegments, consumer demand for best value, rather than lowest price is generatingopportunities for the supply of higher quality products. DC exporters should have theconfidence to attempt to supply higher market segments.

+ Opportunities exist for those exporters from developing countries who are able to supplyproducts from sustainable sources. All EU producers acknowledge the implications of the

consumer trend to more environmentally friendly furniture. If their existing sources arenot able to supply the correct materials, they will need to look elsewhere.+ Outsourcing continues to offer opportunities for developing country exporters.

Outsourcing is largely driven by the desire to reduce costs, but try to ensure that youoffer something more than this to potential EU partners. They will also be interested inyour design expertise. There may be design styles unique to your country that canprovide you with a point of competitive advantage in relation to other exporters. LargerEU companies are more likely to be the best contacts for this.

+ Opportunities can also be found by identifying small or medium-sized producers who wishto maintain their independence in an increasingly competitive international market. Theywill be interested in forming relationships with good companies who are willing to engageto supply parts or components rather than finished products.

+ If you are technologically competetant, you will be better-placed to take advantage ofopportunities. For example, EU manufacturers will prefer to work with those developingcountry suppliers who have the technical infrastructure to integrate their systems andprocedures with their own. This also relates to your ability to work with a range ofdifferent materials.

- EU consumers are demanding more sophisticated furniture designs. This requires thatproducers may need to afford to invest in capital-intensive equipment. This could be asignificant disadvantage in your ability to engage in the EU market.

- You will be just one of a number of exporters wishing to engage in the EU market. You facethreats from new Member States who have their own established furniture industries andalso possess a cost base well below the EU average. Other non-EU European countries arealso a threat. Their geographical proximity makes them interesting to EU manufacturers.


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2.4 Useful sources

The European Furniture Manufacturers Association - http://www.ueanet.com - is the mainumbrella organisation representing the interests of the furniture industry in the EU. Links tothe main national furniture associations and selected trade press are also provided. Thereare also some links to other issues affecting the industry, such as production standards,

issues on production efficiency etc. It occasionally provides production statistics via aquarterly newsletter. The European Furniture Industry Confederation (EFIC) - http://www.efic.eu - is based in

Brussels, representing 65% of the sector at European level including Italy and Germany -the two main producers, Spain, Denmark, Belgium, Portugal, Slovakia and Turkey. Thesemembers have split from the UEA and wish to press for anti-dumping regulations againstcheap furniture imports.

The World Furniture Confederation - http://www.worldfurnitureconfederation.com -provides information on the industry, while a very good source of pan-European informationon furniture can be found at the portal http://www.furniture.eu.

Production data can be found on the website of the European Union. The data is based oninformation provided by the various National Statistical Offices. See

http://epp.eurostat.ec.europa.euand select industry, trade and services and under datafollow the links to access the database on statistics for the production of manufacturedgoods.

Production data can also be found at the various National Statistical Offices within theEuropean Union. The detail provided on furniture production varies for each country. TheUnited Nations Statistics Division provides links to all National Statistics worldwide -http://unstats.un.org/unsd/methods/inter-natlinks/sd_natstat.htm.

The Furniture Industry Research Institute - http://www.csilmilano.com - based in Milan,Italy produces regular reports on production in the furniture industry, both in the EU andworldwide. Information from this source has to be paid for.

The European Union website also provides an overview of the furniture industry. Seehttp://ec.europa.eu/enterprise/furniture/index_en.htm.

The International Alliance of Furnishing Publications (IAFP) http://www.iafpalliance.com -consists of 16 members representing the leading furniture-producing countries in the world.It reports on business, economic conditions, marketing and design trends.

Names and addresses of interesting players in EU furniture production are provided in theindividual country reports.


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http://www.ueanet.com/http://www.efic.eu/http://www.worldfurnitureconfederation.com/http://www.furniture.eu/http://epp.eurostat.ec.europa.eu/http://unstats.un.org/unsd/methods/inter-natlinks/sd_natstat.htmhttp://www.csilmilano.com/http://ec.europa.eu/enterprise/furniture/index_en.htmhttp://www.iafpalliance.com/http://www.iafpalliance.com/http://ec.europa.eu/enterprise/furniture/index_en.htmhttp://www.csilmilano.com/http://unstats.un.org/unsd/methods/inter-natlinks/sd_natstat.htmhttp://epp.eurostat.ec.europa.eu/http://www.furniture.eu/http://www.worldfurnitureconfederation.com/http://www.efic.eu/http://www.ueanet.com/


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3 Trade channels for market entry

3.1 Trade channels

The route from manufacturer to consumer in the furniture trade is complex and varied.Although furniture is increasingly supplied in formats designed to improve the efficiency ofhandling and distribution, the sheer size of many furniture items makes them unsuited tomultiple handling. Consequently the main distribution flows in the EU tend to be frommanufacturer to importer to retailer to consumer. There are variations on this, particularlywhere large retailers such as IKEA ship direct from manufacturers, eliminating part of thedistribution chain. This is an increasing trend.

As Figure 3.1 shows, there is a clear distinction between specialist distribution where theproduct is handled by intermediaries and furniture retailers, and non-specialist distributionwhere furniture is just one of a wide range of products handled by the companies in question. Specialists represent approximately 80% of the distribution of furniture in the EU markets,

and they are either organised in the form of large chain stores or buying groups (this tendsto be most common in northern Europe), or independent (usually predominant in southernEuropean countries such as Italy, Spain and Portugal).

Non-specialists include department stores, mail order, Do-It-Yourself (DIY) stores orhypermarkets. They buy from specialised intermediaries, through their own intermediariesor direct from manufacturers. This channel represents about 20% of furniture retail sales inthe EU.


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Trade channe ls For exporters in developing countries, the physical distribution of furniture can be a constraint.When exporting furniture for the first time, importers are the best channels. They have a goodknowledge of the market and provide the safest and most effective method of distribution forexporters from developing countries. Once sales of your product(s) have developed, you couldeither expand your business with your importer or consider supplying direct from your own

warehouse, which can be set up for you by a specialised logistics company in the EU.

Exporters need to appreciate the hurdles which have to be overcome in order to be acceptedby certain types of customers, whether they are wholesalers or retailers. In many cases, it isnecessary to undergo a process to become accepted as an approved supplier. It is often notenough just to present your product to become accepted. You company will increasingly berequired to undergo regular inspections or audits to satisfy your customer that you continue tomeet their standards. This is particularly important as environmental considerations areimportant in the furniture trade. The larger the organisation you are dealing with, the morelikely this will be the case.

Importers

By buying on his own account the importer takes title to the goods and is responsible fortheir onward sale and distribution in his country and/or in other EU markets. Those importerswho are not exclusively tied to a brand manufacturer usually buy and sell the goods, take careof import/export procedures and hold items in stock. Many importers sell directly to specialistretailers and department stores through permanent exhibition centres, while others have theirown sales staff that visit retailers on a regular basis and take orders.

The importer has contacts in the local market, knows the trends and can supply considerableinformation and guidance to the overseas manufacturer. The development of a successfulworking relationship between manufacturer and importer can lead to a high level of co-operation with regard to appropriate designs for the market, new trends, use of materials andquality requirements. Some importers also act as wholesalers.

WholesalersWholesalersoften supply independent or specialist furniture shops and play a major role in thesupply of furniture. They usually specialise but often carry a wide variety of products. Thetrend of bigger retailers and buying groups going outside the traditional distribution systemhas caused wholesalers to reconsider their position in the distribution structure. This hasencouraged wholesalers, who were losing part of their business, to operate on a regional basis orin a more product-specific manner.

The following other channels are good alternative distribution channels for exporters:

AgentsIn your own country, there are buying agents. These independent companies negotiate andsettle business on the instructions of their principals and act as intermediaries between buyerand seller. They do not buy or sell on their own account. They work on a commission basis andrepresent one or more larger manufacturers/suppliers/retailers, although competition isavoided. Often the buying agent has his office in the supplying country.

In the target country, there are sellingagents, which also are (specialised) independentcompanies. They work on a contract and commission basis for one or more manufacturers.Some of them sell from stock in order to meet their clients' short-term demand, which is ona consignment basis. If an agent builds up his own stock, he is in fact functioning as awholesaler or distributor.

Buying Groups

Buying groups prefer to minimise the cost of middlemen by purchasing directly from a supplierwhenever possible. This channel is used for large-scale requirements, where direct dealing


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with well-known suppliers is essential. These groups act as purchasing agents for theirindividual members (smaller furniture retailers) and financial intermediaries between producersand retailers. The objective of the buying group is to make it possible for its members to deal withthe growing power of large furniture chain stores and discounters.

As a group, they have the necessary buying power to obtain greater discounts from suppliers.

Sometimes they offer warehouse facilities to their members. Other advantages include creditcard rates, provision of marketing intelligence and use of the buying groups brand name, stafftraining and advice on legal and business issues. Buying groups are common in the furnituretrade, particularly in Germany (Begros, Garant and Europa Moebel) and Spain (Grupo Venturaand ACEM). Some buying groups operate in a number of different EU countries.

Local suppliersFaced with rapidly rising production costs, making some manufacturers uncompetitive(especially in labour-intensive production lines), manufacturers are increasingly assuming therole of importers. Like importers, they look for low-cost sources that can produce furniture ona made-to-order basis, instead of purchasing ready-made articles. The main advantage isthat these items can be made according to their own design, quality and colour specification.

These are added to the local manufacturers own portfolio and help their own market profile.These local manufacturers can offer good opportunities to DC exporters in some cases. Itmay be in the form of partial supply, but it is an alternative route to the market.

Other terms usedYou will hear many other terms used for various actors in the supply and distribution chain forfurniture. For example, distributor is a term used to describe a person, organisation or outletthat has been appointed by a particular brand manufacturer to sell or resell that brand. Alicensee describes someone who has bought the rights to sell a particular brand in a particularsales area. Factory outlets are an example of vertical integration established bymanufacturers/suppliers to sell out of date articles from unsold stock direct to consumers, andare growing in importance in the EU. They are a threat to retailers, especially in Italy, Portugal

and Belgium. Here, FOC (Factory Outlet Centre) schemes are being built closer to major citiesand there is no clear definition of the goods that can be sold in these centres.

Some recent distribution chain issues of relevance to exporters are:

Vertical integration by manufacturersHere manufacturers sell direct to consumers via their own stores, removing the need forretailers. One example is the single brand or flagship store (e.g. Leolux design centres,Ligne Roset, Sofa Workshop Direct, Classic Choice), which sells the complete furniturerange of one brand and is meant to enhance the brand image. Most stores have a designcorner for tailor made furniture.

Store attractiveness and regular change by retailersWith the growing influence of fashion in furniture, furniture stores now change their rangesmore frequently, giving the store a sense of continual change. New furniture ranges can becombined with all sorts of accessories, creating a total interior concept. For an exporter it isimportant to be aware of this concept. He should try to make a link here when introducinghis products, even at importer level. Nowadays, shop interiors appeal more to consumertarget groups and can range from classic, colonial, contemporary to ultra-modern.

See Chapter 3 of the CBI Export Guidelines for more information on the selection of the mostsuitable channel for your own situation.

Retai lersAs shown in Figure 3.1, the structure of furniture distribution can be broadly divided as follows: Special ist d istr ibut ion, where all retailers specialise in furniture, or in sub-sectors such as

kitchen, bedroom or bathroom. The specialist trade accounts for about 80% of all distribution


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in the major EU markets. Specialists can be organised or independent. Organised retailers arethe large chain stores (eg IKEA, Conforama etc), franchised stores or concept stores.Independent retailers are smaller shops, more common in southern EU and new MemberStates. Many of these are affiliated to buying groups.

Non-spec ial i s t d i s t r i bu t i on refers to outlets that mainly sell other items, but also includefurniture, eg department stores, hypermarkets, mail order companies etc. This accounts for

about 20% of sales in the major EU countries. This share is forecast to rise in the future.

Specialist retailersDespite the dominance of IKEA, furniture retailing in the EU is still quite regionalised. Retailingvaries by product (e.g. bedroom specialists, kitchen specialists) and by country. Chain storeswith large showrooms are prevalent in middle and northern EU countries, while independentshops with small showrooms are typical in Italy, Spain and the new Member States. The broadtrend has seen independent outlets suffering at the expense of larger chain stores. Thisconcentration in outlets has coincided with an increase in the size of outlets.

In 2008, there were approximately 125,000 furniture retail outlets in the EU, with around450,000 employees. Furniture retailing has become more diversified with many types of

outlets, varying from those stocking a special style of furniture to those carrying a wide rangeof products with related accessories. Although the total retail floor space dedicated to sellingfurniture has increased, the number of outlets selling furniture is decreasing. The expansion inretail space has been helped by the suitability of furniture to out-of-town locations. More spacehas also led furniture retailers to diversify into other related areas such as household goods.

There are three keys types of specialist retailer: Chain stores

These specialist stores are usually part of a national or international chain store orfranchised operation under the same name and central management. Chain stores are wellrepresented in the UK, Belgium, the Netherlands, France and Germany. Most chain storeshave standardised product ranges and are located on the high street or at out-of-town

shopping centres. Many chains are national, but an increasing number are nowinternational. Because of volume discounts from their suppliers, they can offer items atlow-medium prices, which consumers often purchase on impulse. Sales through furniturechain stores represent about 25% of furniture sales in the EU.

Large chains such as IKEA have their own purchasing staff, buying from all over the world.In the country of origin, most buyers prefer the lines between manufacturer and the sourceof raw material (e.g. rattan farmers) to be as short as possible. In this case, there is bettercontrol over production and communication lines are short, reducing the risk ofdiscrepancies between buyers' requirements and final product.

Independent specialistsIn most EU Member States, small shops are still well represented. Specialist shops mustknow the latest trends in fashion, understand how that affects furniture design, and alsosell those contemporary products. Specialist stores need to offer added value by givinggood advice and service to consumers.

Nowadays, most specialist shops have to cope with issues such as more demandingconsumers, more competition from non-specialists and discounters and cheap imports. Inorder to differentiate, these specialists continually seek new sources to develop their ownexclusive collections and change their ranges more frequently (more than twice a year).

Furniture boulevardsIn central and northern EU countries, furniture sales networks are modern, well-structuredand very efficient. Large interior shopping malls of 10,000 m or more are located in out-of-

town shopping centres. A shopping mall houses a mix of smaller and medium sized stores,which specialise in furniture (dining and living, bedroom, kitchen etc.), lighting or household


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goods. Most of these stores are linked to a buying group or to a chain store operation. Largefurniture boulevards have existed in the Netherlands for over ten years. They are nowextending the concept to include DIY in a new project at Westpoort near Amsterdam. Thefirst furnishings boulevard in France, Domus Paris, opened in 2006. With a total sales areaof 62,000 m on three floors, 130 brands from the international furnishings trade arerepresented. A further two are planned in Germany.

Non-specialist retailers

Furniture sales by non-specialist outlets are increasing, driven by consumers wanting morechoice in the places where they can buy furniture, but also due to the buying power of somelarge operators that are able to offer good value furniture at attractive prices.

The main types of non-specialist retailers are: Department stores

This channel is very important in the furniture trade. Although department stores are non-specialists in that they also sell a wide range of other products, many department stores arein fact very specialised because of their long experience in the market. The GermanKarstadt (91 stores), Kaufhof (141) and the Spanish El Corte Ingls (68) in particular are

leaders in the EU. They have furniture departments and concessions (shop-in-shop) in theirstores, including their own brand. Department stores in other countries include GalleriesLafayette (France), John Lewis (the UK), Coin (Italy) and Bijenkorf (the Netherlands), whichalso carry some furniture.

DIY stores, hypermarkets and discountersThey have had a major influence on the increased price competition in the whole market,with discounters selling at low prices. They tend to stock limited ranges of lower costfurniture but their impact on the market in terms of polarising between low and high marketproduct is important. Some large retail organisations e.g. Carrfour (France), Metro and Aldi(Germany) and DIY chains have furniture manufactured in low cost countries, to increasetheir profit margins.

Mail order and the InternetMail order has been important as a sales channel for ready-to-assemble furniture, but notso important for sales of product at the higher end of the market. Consumers still prefer togo to a retailer to see and try items of furniture, especially if they are paying significantamounts of money. The same principle applies to the Internet, which until recently wasprimarily used as a means of comparing prices. However, direct sales through this mediumare forecast to become more significant in the future.

Reta i le rs versus supp l ie r s The increasingly concentrated retail sector has strengthened its position. This has had anegative impact on suppliers, smaller EU manufacturers, and importers who are beingsqueezed out in some cases. Large retailers source directly from any country at very lowprices. Suppliers compete by offering their own discount policies to different retailers (or buyinggroups). In addition, suppliers pressurise retailers to order earlier and in large quantities.These developments have created some mistrust between retailers and suppliers. This is asituation from which some smaller suppliers and developing country exporters could benefit.

3.2 Pr ice structure

When entering the target markets, successful pricing is a key topic in the market entrystrategy. In fact, pricing is the only area of the strategy that generates revenues forexporters. All other activities generate costs.

Price is the first point of comparison in evaluating your product against the competition.

Profit margins have been under severe pressure due to increased competition in this sectorand increased expectations from consumers about product quality and after-sales service.


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Furniture is usually considered to be a non-essential purchase, so it is vulnerable toeconomic downturns, which is another reason why margins can also be under pressure.Large retailers exert further pressure on prices and margins in the trade channels bypurchasing in substantial quantities.

An exporter from a developing country would be better off by concentrating on the

exclusiveness of his product e.g. introducing original styles of furniture that meet thefunction, design, size and comfort needs of a specific target group. In this case, price is lessimportant. Try to avoid being regarded as another cheap supplier from a developingcountry.

Key issues on price structure

The trade channels with typical mark-ups of each channel and retail category. Retail prices of competitors products in your target market. Discount structure and credit terms offered by local competitors. The production costs, incoterms, import duties, anti dumping levies and VAT level. Additional costs for product adaptation, packaging, marketing and promotion etc. The most reasonable or tactical price level according to some of your local contacts in

the field (agents, other exporters from your country, store managers).

In the case of trial orders, which are delivered for the first time, sometimes a discount isgiven to buyers and freight is prepaid. Once prices have been agreed and the targetmarkets are set, it is important to keep control and avoid too large a difference betweenprices in each target market, as they are now easier to compare because of the Euro.

Marg ins In the price-competitive furniture market, margin maintenance is vital along with cost control.Nevertheless, margins have been under pressure and have fallen. For retailers it is importantnot to erode the margin too much when making price promotions. In several EU countries, thishas led to some stores being declared bankrupt. Successful retailers have the right balance

between cost control, good retail margins and good buying.Margins at retail levelDue to the variety in product types, the typical mark-up for retailers averages between 80-100% - see the price calculation example in Table 3.1. This includes value-added tax (VAT),ranging between 15-25% depending on the EU country. Actual margins can vary widely aroundthese averages depending on the exclusivity of the product, the level of demand, the type ofstore, the nature of the product and the handling involved. For example, where little input isrequired from sales staff (e.g. IKEA), the retailer will ask for a low margin e.g. 70%. The sameapplies to RTA furniture. On the other hand, margins for luxury furniture, which need moredisplay space, will most likely have a higher margin e.g. 100%.

Another factor is the location of the retailer. For example, high street chain stores are oftenin expensive places, carry a wide range and have many sales staff. All of this is also reflectedin a higher margin. On the other hand, margins of department stores or large retailers suchas Fly are lower, because they often buy direct from manufacturers and have outlets atout-of-town shopping centres.

Margins at importer/wholesale levelWholesalers and importers base their costing on a Cost Including Freight (CIF) base. Thismeans that their landed cost is the FOB (Free on Board) plus transport to his warehouse andinsurance and possible import duty. The importer/wholesaler mark-ups average between 25-30%. Depending on the circumstances, there is also a wide variation around these averages. Inprinciple, importers maintain a fairly close control over recommended retail prices, butoversupply and the growing success of furniture discounters has distorted the situation. Mark-

ups as low as 15% and as high as 60% have been recorded.


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So try to look carefully at your costing before making your quote to importers, especiallyif they supply the low end of the market e.g. hypermarkets, discounters etc. This may provenot to be an interesting channel for you. Instead you may try to find importers who operatein the medium to high range part of the market, supplying specialist independent retailers,buying groups or department stores.

The typical average commission rate for an agent is usually 10-15% of sales.

The following Table 3.1 indicates the effect of low and high margins on the final consumerprice, based on a CIF price of 100 for an item of furniture when sold through an importer toa retailer. If the same item is sold through an agent on to an importer and retailer the CIFprice is 110. The final consumer prices can be compared with the price level of similar itemsof competitors.

In this example an imaginary mark-up is set, covering overhead costs (e.g. housing,personnel, selling and general expenses, own profit), which is estimated at 35%. Please notethat the breakdown of the cost price by material, direct labour and other cost is purely for thepurposes of illustration here:

Table 3.1 Calculation of final consumer priceL o w H i g h

Material cost (incl. wood certification and 15% forunsold stock)Direct labour cost (incl. design costs)Other cost (e.g. packaging, promotion, sample shipments)Cost priceMark-up (overhead costs incl. own profit e.g. 35%)Export price (FOB)Agent's mark up (e.g. low not through agent, h

200920-20domestic20furniture20-20eu2

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