Before releasing the updated furniture market research with the results of 2015, we are sharing information from the previous report. The article turned out to be great and interesting! Happy reading, dear clients.
In 2014, retail sales of household appliances furniture year increased compared to 2013. The quarterly growth rate was about 10%. Many consumers, fearing a sharp increase in prices, postponed purchases planned for 2015 to the end of 2014, which is why part of the 2015 demand was realized at the end of 2014. Accordingly, the growth rate of sales volume was at the level of 10-15% compared to the same quarter of 2013. As a result, the volume of retail sales in 2014 was no exception to the dynamics of recent years. Furniture sales amounted to about 425 million rubles. Along with the growth in retail sales in value terms, consumer prices for furniture also grew. Thus, the average consumer price for all types of furniture at the end of 2014 increased by 9%. Thus, if we exclude the increase in the average price, we will get an increase in retail sales in physical terms by 1-2%.
Volume of supply on the market
According to our estimates, the volume of supply on the Russian furniture market in 2014 developed somewhat faster. The growth rate of supply volume in physical terms (in pieces) in this period amounted to +12.7%. Over the past 5 years, the positive dynamics in the furniture market were interrupted only once: at the end of 2013, the market decreased by 7.3% due to a rather strong reduction in production volumes. In general, compared to 2010, there was an increase in the supply of furniture on the domestic market by almost 1.5 times.
Despite the significant increase in average retail prices for furniture, the average market price of furniture (that is, the weighted average of the prices of furniture manufacturers and importers) has remained almost unchanged compared to 2014. This is due, first of all, to a decrease in the average price of imported furniture, which offset the increase in average producer prices. In ruble equivalent, the market grew by 12.9%, which is comparable to the dynamics of 2012, when the highest market growth rates in physical terms were observed.
At the end of 2014, about 15% of the total furniture market volume was accounted for by the office furniture segment. However, the share of this segment has been steadily declining over recent years. So, if in 2011 this type of furniture occupied a fifth of the total volume of the furniture market, then according to the results of 2014, the share of office furniture decreased to 15%. Office furniture was the only segment in which negative development trends were observed at the end of 2014. In all groups of household furniture, an increase of 5-15% was noted.
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Import of furniture to Russia
Speaking about the dynamics of the Russian market, we must not lose sight of the situation with furniture imports. With an increase in Russian furniture production of 2%, there is an increase in import volumes of 23%. The accelerated growth rates of imports lead to an increase in the share of imported products on the Russian market, which in 2014 grew by 5 percentage points and amounted to more than 57%. In value terms, however, the share of imports remained virtually unchanged: both in ruble and dollar equivalents, a decrease of approximately 0.3 percentage points was recorded compared to the 2013 level. We can talk about an increase in the volume of imports of cheap furniture to Russia. As expected, the gradual reduction of customs duties taking place as part of Russia’s accession to the WTO opens up more and more opportunities for the supply of furniture costing up to 1.8 euros per 1 kg of gross weight. Let me remind you that it is for this segment of furniture that the main reduction in customs duties will occur. At the time of Russia’s accession to the WTO, the customs duty on this type of furniture was 0.75 euros per kilogram of gross weight, and by 2018 this figure should be 0.23 euros.
The leaders in terms of furniture imports to Russia are China, Belarus and Ukraine. The share of the three countries in the total volume of imports in physical terms amounted to 63.7% at the end of 2014 (+1.2 percentage points compared to the level of 2013).
Russian production and export of furniture
Despite the fact that domestic consumers increasingly prefer imported products, Russian manufacturers are gradually increasing their furniture production volumes. Judging by the dynamics of development of key indicators (furniture production and export), domestic manufacturers managed to establish contacts with foreign furniture selling companies. At the end of 2014, furniture exports from Russia increased by almost 20% compared to 2013. The main drivers of growth in furniture exports are upholstered furniture, as well as mattresses and mattress bases. It was these groups of goods that had the highest growth rates compared to the 2013 level. Exports of Russian-made office furniture showed weak positive dynamics (+2.3% compared to 2013); in the kitchen and bedroom furniture segments, supply dynamics were negative.
The faster growth rates of furniture exports in relation to the dynamics of production volumes formed an increase in the share of furniture produced for export in the total production volume. So, if in 2012-2013 this figure was about 8.5-9%, then according to the results of 2014, the share of export supplies increased to 10.5%.
Production growth in 2014 in physical terms, as noted earlier, was lower than the same indicator in the import and export of furniture - at the end of the year, the growth rate was 2.4% compared to the 2013 level. The main growth in production occurred due to an increase in the production of upholstered furniture, as well as mattresses and mattress bases. The growth rates in these categories were 11.5% and 15%, respectively. A decrease in production volume was recorded in two groups of furniture produced: office furniture (-6.1%) and tables and chairs (-10%).
As for furniture production in value terms (in manufacturer prices), at the end of 2014, much higher dynamics were noted. The growth rate last year was 14%. Such a high figure reflects both an increase in production volume in physical terms and an increase in average prices of furniture manufacturers: +11.3% compared to the level of 2013 (during 2010-2013, the increase in the average price of manufacturers did not exceed 4.5%) . When considering the production structure in value terms, it is again worth highlighting mattresses and mattress bases - this is not only the fastest growing segment in terms of production, but also in terms of increasing average cost. In this segment, based on the results of 2014, the average producer price increased by more than 1.5 times. Apparently, this is due not only to the rise in prices of materials used to produce mattresses, but also to a shift in demand towards more expensive mattresses and mattress bases.
Figure 1. Structure of furniture production in physical terms, 2014
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Exchange rates, formaldehyde and crisis
The growth of the dollar and euro against the ruble, which began in the second half of 2014 and continues to this day, will inevitably affect the furniture market. According to some estimates, at least 20% of the cost of furniture depends on changes in the dollar exchange rate. Accordingly, if the dollar exchange rate increases by 10%, we should expect an additional increase in value of at least 2%. Considering that the average dollar exchange rate is predicted to be 60 rubles per dollar for 2015, the price increase due to the increase in the value of the currency alone will be at least 11%.
The technical regulation of the Customs Union “On the safety of furniture products”, which came into force on July 1, 2014, will also make a significant contribution to changes in the cost of furniture, according to which the maximum permissible formaldehyde emission is set at 0.01 mg/m3 (E0.5). Reducing emissions is only possible by replacing currently used wood boards with wood boards of the E0.5 class, the cost of which is higher, and production volumes in Russia are low (few wood board manufacturers produce the corresponding boards).
A change in the dollar exchange rate (and a corresponding increase in the cost of imported furniture), the entry into force of new regulations, as well as general inflation will create a rather sharp change in the cost of furniture products. According to analysts from the Express-Obzor company, the increase in the average cost of furniture for consumers could be 20%-40% compared to 2014.
A significant change in the cost of furniture products will also affect the volume of retail sales. To better understand the market situation awaiting us, it is worth turning to the data from the 2008-2009 crisis. Dynamics of development of retail sales of furniture in the pre-crisis period 2005-2007. was significantly higher than the same figure in 2010-2013, the annual growth rate was about 20-30%. The growth rate of the average retail price, at the same time, was at the level of 8-10% per year, that is, comparable to the current growth. However, in 2008, and later in 2009, the growth rate of average consumer prices was 18% and 14%, respectively. Rising prices, as well as crisis phenomena in the country's economy, led to a decrease in furniture sales in 2009 in value terms by 2% compared to 2008.
Figure 2. Dynamics of the average retail price of furniture and dynamics of retail sales, 2006-2014
Research
Recently, many forecasts and opinions about the future of the Russian furniture market have been discussed. I offer you my point of view.
Main results 2013/2014
The market volume fell by about 5%, but due to the growth of new companies (both large and small), the revenue of the “old” players fell more strongly. In principle, the market, in my opinion, remains at a high level - 700 billion rubles per year.
Manufacturers are reducing the number of their own stores, but at the same time they are actively encouraging dealers to open their retail formats through franchises. Question: if factories fail to make stores profitable, how will dealers do it? Their margin is 20-40% less than that of the supplier.
Independent retail chains (without their own production) are shrinking or leaving the market because they cannot withstand price competition with manufacturer chains. The trend for online sales is fading, since Yandex has raised advertising prices tenfold over the past 3 years, and the whole idea of “cheap” promotion is gone. Now 99% of online projects are operating at a deep disadvantage.
The market is accustomed to the waves of crisis. Typically, a crisis occurred once every 5 years and lasted a year. The market lost 20-30%, and then over 4 years it more than made up for what was lost. 1998, 2003, 2008, 2013... Many believed that in 2014 the market would begin to grow again. He hasn't grown up.
Furniture market 2015/2016
There will be a drop of 15-20%. Profitability will decrease, since prices for materials will rise along with the exchange rate, and the market will not allow prices for furniture to be raised in the same way. Imports will suffer the most. Players who have been operating at a loss in recent years will be washed out of the market.
The market will quickly consolidate - successful companies will begin to increase their market share even more actively.
Which strategy should manufacturers choose?
Become specialized. Learn to do one thing, but better than all others (better quality, cheaper, faster). The average manufacturer has an average monthly revenue of 50 million rubles, which he makes from hundreds (sometimes thousands) of assortment items. But to receive these 50 million per month, it is enough to produce 150 sofas or 250 cabinets per day. Moreover, THE SAME sofas and cabinets, which you should be able to make better than everyone else! With a smaller area, fewer staff, no defects and at a better price.
Take the helm. To produce several articles (even for 100-200 million rubles), you do not need to hire “stars” from the market. You need to delve into all the details of your production yourself. If this doesn't suit you, look for another business. 99% of business problems are internal, and therefore no one can solve them better than the owner.
Be adequate. The current times are most difficult for those who started in the 90s with a profitability of tens of percent and are nostalgic for those times. But we must acknowledge the reality: this will never happen again. Tens of percent can only be earned from a monopoly, but the furniture industry will never become a monopoly. Therefore, first you need to set yourself a goal - for example, an income of 3 million per month. For such an income, you need to have a revenue of 100 million per month, make 2-3 articles, supervise 100-300 personnel, work with costs daily. And then you won’t be afraid of any crisis.
According to preliminary estimates, in 2015 in Russia there was a drop in the volume of the furniture market in physical terms by 24.6% compared to the level of 2014. This was caused by the deterioration of the economic situation in the country.
The market volume of household furniture decreased by 24.4%, and office furniture - by 25.2%. Thus, the reduction in the share of office furniture that began in 2012 continued. If in 2012 this segment occupied 23.2% of the Russian furniture market, then by the end of 2015 its share had already decreased to 18%.
Last year, sales volumes of all types of furniture fell, and in 2014 the market declined only due to office furniture. Within the household furniture segment, the largest decline in sales occurred in upholstered furniture, the largest segment of this market.
Due to the increase in the cost of raw materials and components, the devaluation of the ruble and, as a consequence, an increase in import prices, the average price of manufacturers (and importers) on the Russian market in 2015 exceeded 4,000 rubles, which is 34% more than in 2014. As a result, the volume of the country's furniture market in value terms increased by 1.5%.
Due to the crisis, Russians changed their consumer behavior over the past year. According to the All-Russian Center for the Study of Public Opinion (VTsIOM), the share of buyers of less expensive products increased from 22% in January to 39% in September. The share of those consumers who buy less often or deny themselves the purchase of certain things has also increased. This trend is also typical for furniture market. Despite the sharp increase in furniture manufacturer prices, consumer prices increased by only 13.5%, due to a shift in demand towards cheaper types of furniture. The growth of retail sales of household furniture in 2015, according to estimates from the analytical company Express-Obzor, slowed down significantly; the growth rate did not exceed +1% compared to 2014. Taking into account the dynamics of average consumer prices, this indicates a serious decline in sales volumes in in kind. If we divide the total value of retail sales by average consumer prices, then the resulting sales volume in physical terms in 2015 will be 20.3 million units of furniture, and in 2013 it reached 22.9 million units (-11.3%).
There were no significant changes in the structure of retail sales of household furniture by region. The majority of furniture was traditionally sold in the Central Federal District. The share of this region according to the preliminary results of 2015 was 40.1%. The second place in this indicator is occupied by the Volga District (13.9%), the third is the Ural District (10.5%).
Furniture production decreased
According to preliminary results of the past year, based on data up to November 2015 inclusive, in Russia the volume of furniture production in physical terms decreased by 6.1%. The negative dynamics were formed by a decrease in the production of office furniture (-18.6%), mattresses and mattress bases (-16.1%) and upholstered furniture (-8.5%). Average prices of furniture manufacturers in 2015 increased by 18.4% compared to 2014, when the growth rate was +12.4%. This is the largest increase since 2010. According to Express Review, in addition to the devaluation increase in the cost of imported accessories, the price increase was also supported by the technical regulation of the Customs Union “On the safety of furniture products”, which came into force on July 1, 2014, according to which the maximum permissible formaldehyde emissions at the level of 0.01 mg/m3 (E0.5). The prices for upholstered furniture, which use a lot of imported fittings, have increased the most (+44.1%), followed by bedroom furniture (beds and wardrobes), which use a lot of wood panels. The increase in average producer prices led to an increase in the volume of furniture production in value terms by 11.1%.
Furniture exports and imports are falling
In 2015, the volume of furniture exports did not change; the rate of decline in exports was 0.04% - at the level of 2014, when there was a significant increase in supplies of these products. The demand for Russian bedroom, kitchen and upholstered furniture has increased. The remaining categories of furniture products showed negative dynamics. Since furniture exports remained at the 2014 level, and its output decreased, the trend of increasing the share of products intended for export continued. At the end of 2015, the share of exports amounted to 11.8% (+0.7 percentage points compared to 2014).
The depreciation of the ruble against the dollar, which occurred last year, led to a sharp increase in the cost of imported furniture and, as a result, to a decrease in demand for it. According to the preliminary results of 2015, the decrease in the volume of imports in physical terms in annual terms amounted to 36.3%, and the volume of imports returned to the levels of 2011. Such a sharp drop led to a reduction in the share of imported products on the Russian market from 57.9% in 2014 to 48.1% in 2015
At the same time, the trend of demand shifting towards cheap furniture continues. This is affected by the change in the ruble exchange rate, as a result of which the price of even inexpensive furniture has almost doubled, which led to buyers abandoning expensive furniture in favor of cheaper ones. In dollar terms, the volume of imports decreased by 42.6%, and the average cost of imported products decreased by 8.4%, to $51 per piece of furniture. In addition, the change in demand was influenced by a reduction in customs duties on imported furniture in accordance with the agreements on Russia’s accession to the WTO. The main reduction in rates occurs precisely in the segment of cheap furniture costing less than 1.8 euros per 1 kg of gross weight. At the time of Russia’s accession to the WTO, the customs duty on this type of furniture was 0.75 euros per 1 kg of gross weight, and by 2018 this figure will be 0.23 euros.
There were no changes in the structure of furniture imports by country at the end of 2015; the leading position is still occupied by China, the second place with a significant lag is the Republic of Belarus, and the third place is Ukraine.
The international conference center “On conference” invites you to take part in the conference “Furniture Industry of Russia – 2015”, which will be held on November 14, 2005, at the Baltschug Kempinski Hotel, Moscow.
This project is intended to trace the trends in the development of the furniture industry market until 2015. The purpose of the conference is to consider and discuss current issues, the state and prospects for the development of the industry in the near future.
The following topics will be discussed at the plenary session:
General development trends and future problems of the Russian furniture industry in 2006. (introductory topic).
Accession to the WTO means radically new conditions for doing business.
State programs to support the furniture industry
Technology development is a lifeline for Russian companies
Attracting large investors as the basis for development
Foreign companies: partners and competitors
Global trends in the furniture business
Import and export duties: possible changes
Prospects for the development of large retail chains
Discussion sessions:
Session I Accession to the WTO – radically new conditions for doing business
Session II Foreign companies: partners and competitors
Session III Prospects for the development of large retail chains
Confirmed Speakers:
Kushnerenko Andrey Konstantinovich, Deputy Head of the Department of Trade Negotiations of the Ministry of Economic Development and Trade
Portansky Alexey Pavlovich, Director of the Information Bureau on Russia’s accession to the WTO, Ministry of Economic Development and Trade
Anatoly Mikhailovich Kochetkov, Deputy Head of the Department of Consumer Market and Services of the Moscow Government
Mikhail Vyacheslavovich Kravchenko, President of the March 8 Holding
Svetlana Savelyeva, Managing Director of the President of the Holding for the conceptual development of “March 8”
Galina Martynenko, Marketing Director of Solo
Due to the unstable exchange rate of the national currency, demand for non-food products has increased; in the last week of summer, an increase in sales from 10 to 80% was recorded compared to the August average. Furniture was no exception; citizens, no longer knowing what to expect tomorrow, begin to spend money on more expensive interior items, due to this the situation on the market is improving.
Today in Russia there are approximately five hundred large and more than two thousand small furniture production facilities. The total volume is about three billion dollars, of which only 14% is exported.
The most popular among Russians is upholstered and cabinet furniture.
Also, recently furniture for bathrooms and children's rooms has been gaining increasing momentum; in addition, in order to save usable space, people have begun to give greater preference to built-in furniture. As for office furniture, sales volumes here have increased by almost half.
Eighty percent of Russians support the domestic furniture manufacturer, of course, mainly because of the price - it is much less for our products. The quality of domestically produced products, of course, differs from foreign ones, but only slightly, since some materials and components still come from Germany, China and Italy, despite the sanctions; there are also production facilities that have been modernized and use modern equipment. Only a few citizens order furniture from foreign manufacturers, but for the majority of people, given the current economic situation, this is not advisable. As for production on the territory of Ukraine, here, according to Rospotrebnadzor, the amount of components harmful to health in manufactured products is several times higher than permissible, so there is no place for such materials on the Russian market.
In addition, government procurement plays an important role for furniture companies, which is a promising and profitable solution, but unfortunately, recently the number of auctions has decreased, which has led to increased competition. In the struggle for orders, manufacturers have to offer more favorable conditions to potential clients. In addition, small companies have begun to show interest in government procurement; in the current situation, they do not intend to limit themselves to the production of furniture only for the home. We wish them good luck in this matter, because, as we know, companies with many years of experience in conducting such procedures will not give up their “bread” so easily.
In government procurement, this is a favorable time for furniture production that produces non-standard products. Here the competition is much lower, because only not many companies can fulfill such an order in compliance with special GOSTs.
There is no consensus on the prospects for the development of the government procurement market. Some experts believe that the number of government orders will decrease, and the requirements for the selection of suppliers will become more stringent.
On January 1, 2016, the decree, which has already been signed by Dmitry Anatolyevich Medvedev, will become valid; it will talk about the permissible cost of furniture for the offices of civil servants. Now government purchases of furniture made from valuable wood species, as well as from genuine leather, will be available only to senior officials, which will certainly have a negative impact on manufacturers.
Others are more optimistic; they believe that the need for government procurement will continue, and if the economic situation improves, the number of orders will increase significantly.
The same companies that manufacture furniture for the Ministry of Defense and law enforcement agencies will not lose their income, as defense costs will increase.
In general, the Russian furniture market has great potential; we have large raw material bases, which allows us to significantly reduce the costs of importing and processing raw materials. Under the conditions of sanctions, as well as due to the instability of the national currency, the import of materials such as chipboard and MDF becomes difficult, and the prices for these domestically produced materials, paradoxically, are several times higher.
Experts believe that in the context of import substitution, by 2018 Russia will completely switch to domestic materials.
Yana Sabaevskaya for Kit Ocenka LLC