INDUSTRIAL REPORT ON FURNITURE INDUSTRY
SUBMITTED BY
N. BALA AJESH GOUD
CONTENTS 1
Introduction to Furniture Industry...................................
3
Global Industry...................................................... India a preferred IB..................................... 7 Introduction to India...........................
destination
for
Industry
in
Furniture 8
Furniture Industry Chain............................................. Industry Growth, Forecasts...................................
Furniture 4
Value 12 Trends 13
Key Demand Drivers Industry........................... 15
of
& Furniture
Major Players India............................................................
in 16
Industry Analysis....................... Analysis...................................... ............................. ........................... ................ ... 18 Drivers & Challenges Market........................ 20
faced
by
Indian
2
INTRODUCTION TO FURNITURE INDUSTRY
The furniture industry has a long history. From the ancient Greeks, Romans, and Egyptians through the Middle Ages, the craft of furniture making has evolved with technology. Where once furniture was necessarily crafted by hand. The twentieth century has seen technological advancements that allow all manner of furniture items to be automated and mass-produced. In the United States, the furniture industry began with the traditional methods of hand crafting. As the division of labour (task specialization) method was applied in the nineteenth century, furniture production began to increase, and the division between furniture manufacturing and sales developed. Furniture
sellers
developed
the
practice
of
buying
furniture at wholesale prices from manufacturers and selling them in showrooms, which gained popularity in the mid-1800s. Large stores kept their own workshops for specialty items. With the rapid development of retail trade the direct link between the customer and the furniture maker began to disappear. By the early 1900s mass production of furniture was well
3
established in the United States, with principal manufacturing centres at Jamestown, New York; High Point, North Carolina; and Grand Rapids, Michigan. In attempts to generate more sales many manufacturers entered agreements with retailers to showcase their products. The concept proved successful as the manufacturer had access to
a
dedicated
retail
outlet,
and
the
retailer
received
proprietary rights on the goods. A vendor-ship program was also created, allowing consumers to choose the furniture in a showroom and then having the manufacturer ship these items directly to their household; this allowed the showroom to carry fewer inventories. Wholesale distribution of furniture became divided
into
two
categories:
household/garden
and
office/business.
Global Furniture Industry: World production of furniture is worth about US$ 376 billion in current US$. This estimate is based on CSIL processing of data from official sources, both national and international, that cover the 60 most important countries. The seven major industrial economies (which are, in order of furniture production, the United States, Italy, Germany, Japan, France, Canada and the United Kingdom) together produce about US$ 159 billion. The furniture production of all high income countries combined covers 58% of the world total. Furniture production in middle and low income countries currently amounts to 42% of the world total in value. 4
There are three countries (China, Poland and Vietnam) where production is increasing rapidly thanks to investments in new plants especially designed and built for exports. World furniture trade basically involves 60 countries. The leading importers are the United States, Germany, France and the United Kingdom. The major exporters are China, Italy, Germany and Poland.
Percentage breakdown of world furniture production:
WORLD TRADE OF FURNITURE (US$ BILLION)
In 2009 the world economy was in recession and furniture demand has decreased in all large furniture markets (i.e. those selling more than US$ 10 billion of furniture at retail prices), with the exception of China and India. Conditions are expected to stabilize in 2010 and substantial growth is expected in China, India and Russia. 5
Other major markets (the US, Canada, Australia, South Korea) will grow moderately. In all other large markets demand will be either stagnant or decreasing.
FURNITURE CONSUMPTION IN LARGE MARKETS, 2009 & 2010. FORECAST OF YEARLY CHANGES IN REAL TERMS: Real change forecasts 2009
2010
-10%
1%
CHINA
6%
6%
GERMANY
-5%
0%
ITALY
-11%
-1%
UNITED KINGDOM
-10%
-5%
-4%
0%
-10%
0%
-3%
1%
SPAIN
-10%
-5%
INDIA
5%
6%
AUSTRALIA
-1%
1%
SOUTH KOREA
-5%
1%
-10%
3%
UNITED STATES
FRANCE JAPAN CANADA
RUSSIA
INDIA – A PREFERRED DESTINATION FOR INTERNATIONAL BUSINESS
India has undergone tremendous economic development in last few decades. Considering the fast growing and barely tapped middle class market, India has now become one of the most favoured destinations for international businesses to 6
expand. Some of the major changes and recent trends that have given strength to Indian economy include India joining the trillion-dollar GDP club, fast growing middle class with rising income levels and majority of Indian population falling in below 34 years of age. These trends along with the growth in sectors like real estate have a significant positive impact on the Furnishing Industry in India. Moving its population out of poverty and generating huge demand,
India
has
undergone
tremendous
economic
development in last few decades. Considering the fast growing and barely tapped middle class market,. To be precise, India today is seventh most attractive destination for foreign direct investments, after US, China, Brazil, UK, Mexico & Germany. Following part of this chapter outlines the major trends and changes that India has gone through during past decades.
INTRODUCTION TO FURNITURE INDUSTRY IN INDIA The Indian furniture industry is fragmented in nature with many small players. In terms of value, this industry is worth INR 350 billion maintaining a growth rate of 10 percent. The organized sector, which accounts to 10 percent of the total 7
market, has contributed significantly to the overall industry growth by witnessing significantly higher growth rate between 17 and 20 percent. However, the unorganized sector, as experts opine, is growing only at a rate of 5 to 6 percent. The furniture sector in India only makes a marginal contribution to the formation of GDP, representing just a small percent (about 0.5%), which indicates a huge potential for growth. It is estimated that the furniture industry comprises 25% of the construction industry and hardware comprises 40% of total furniture industry, out of this 20% is replacement and 20% is new. Wood and wooden products, furniture and fixtures carry a weight of 27.01% in the total manufacturing sector. The furniture industry employs a total of around 30,000 workers. The future on the furniture sector in India seems positive. Talking about production, several agreements have been signed between local producers looking for technology and European and Asian companies trying to reach a potential opportunity in costs. From the commercial point of view, India shows good perspective to sell furniture in the following years. First of all, because its size and secondly due to the newly acquired taste as a result of exposure to western furniture style. India is one of the largest consumers of wood in South East Asia. Until a few years ago the county had considerable quantities of available tropical woods. The most common species in Indian forests are teak, rosewood, ebony, laurel, pine, cedar and rubber trees. Supply of these “ready to uses” species became scarcer due to unconditional and inappropriate 8
exploitation and also due to growing concern about the environment. In India, natural rubber
plantations
covers 520,000
hectares with another 6,000 hectares replanted almost every year since 1994. Kerala state (South India) produces 95% of the total supply of rubber wood in India India
imports
wood (logs) especially from Malaysia,
Indonesia, Myanmar, Ivory Cost, Cameroon, Nigeria, Ghana, South Africa and New Zealand and to some extend from South America. Most soft and hard woods are imported from Russia, Scandinavia and other South East Asian counties. MDF is imported from Europe, and there is also a small local production. Veneered panel are becoming more popular in India and are imported from the European Union and the USA. The total size of Indian furniture industry is estimated at Rs. 350 thousand million but almost 85% of this is unorganized. The remaining 15% is organized and is believed to be growing at a steady pace of 12% to 15% per annum. The share of the wooden furniture market is estimated at Rs. 600 million. Woodworking industry of India is one of the fastest growing in the county’s economy. Much of this growth has been fuelled by the increasing access to modern machinery and technology through easier import policies as a result of India’s entry into the WTO in the year 1990s. There is a noticeable shift in the preference towards mechanized mass production and the up gradation of technology.
9
FURNITURE INDUSTRY COMPOSITION: As with the global market, home furniture is the largest segment in the Indian furniture market, accounting for about 65 per cent of furniture sales. This is followed by, the office furniture segment with a 20 per cent share and the contract segment, accounting for the remaining 15 per cent.
HOME FURNITURE: The size of the overall real estate industry in India is estimated to be around US$ 12 billion. Home Furniture is growing at 30% for the last few years. Almost 80% of real estate developed in India is residential space and the rest comprise of office, shopping malls, hotels and hospitals. Within the household segment, major share is the middle class population of India. About 25 per cent of the urban middle class populations live in homes with five rooms or more, while 45 per cent live in houses with three rooms or less.
OFFICE FURNITURE:
In line with the growth in the Indian economy and subsequent demand
for
office
space, this
segment
has
witnessed good growth at a compounded annual growth rate of 20%. The thrust on real estate and office construction is expected to sustain in the near future, indicating continued growth for the furniture industry 10
CONTRACT FURNITURE: It primarily caters to hotels and its growth is consequently linked to growth in tourism and development of new hotels. As per the World Travel Market‘s Global Report 2008, scope for new tourism development could be seen notably in emerging economic giants India and China, which are likely to remain a strategic priority as growth is predicted to be robust, albeit slow down in global economy. The growth of hotel industry in India can be attributed to the recent growth in the service industry and economy as a whole.
11
FURNITURE INDUSTRY VALUE CHAIN
IMPORTERS
RAW MATERIAL SUPPLIER MANUFACTURERS
WHOLESALERS
RETAILER
12
INDUSTRY GROWTH TRENDS AND FORECASTS
Maintaining a decent rate, the overall furniture industry has grown at 10% since last two three years. An interesting trend underlying this growth rate is that the organized sector of the industry has shown a better growth falling between 17% 20%.
This faster growth of organized sector can be attributed to certain factors like: •
Growth of overall organized retail industry is the most important reason for faster growth of organized players in furniture industry. This can be further attributed to higher disposable incomes, changing lifestyles and India‘s overall economic growth.
•
Lack of Time - Now days nobody has the time to employ a carpenter to get his or her furniture made in home, like earlier days. Especially with the growth in the number of double income families – where both husband and wife are working, no one has the time to get the furniture made by the carpenter.
•
Convenience - Customers no more want to take the pain for deciding designs or raw material for their furniture. Now, they just want to go to a retail store, select 13
something that they like, which goes along with latest trends, which suits his wallet and buy immediately.
Considering the recent developments in organized retail industry and rapidly changing consumer markets as constant factors, the overall furniture industry is expected to grow at 15% CAGR for next five years.
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KEY DEMAND DRIVERS OF FURNITURE INDUSTRY
Consistent growth in the Indian economy and rising living standards are the key factors driving the demand of the Indian furniture industry. Other than these two, factors and subfactors having significant influence on the industry demand are as follows:
REAL ESTATE GROWTH
RETAIL INDUSTRY GROWTH CHANGE IN CONSUMER DEMOGRAPHICS
KEY GROWTH
NEW AFFLUENT INDIAN CONSUMER TOURISM & HOSPITALITY INDUSTRY
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MAJOR PLAYERS OF BRANDED FURNITURE IN INDIA 1. Godrej Interio: Godrej Interio is a unit of Godrej - One of the largest engineering and consumer products companies in the country having varied interests from engineering to personal care products. Godrej Interio, the leading player in organized furniture industry of India, is present in both office and home furniture, with more focus on office segment. Along with this, Godrej Interio also specializes in providing customized solutions to some specific institutional segments like labs, navy etc.
2. Style Spa Ltd: Zuari Chambal Group of K. K. Birla conglomerate promotes Style Spa Furniture Limited as a company. The company is pioneer and one of the largest manufacturer in panel
based
furniture
made
from
particleboard.
Indian
Furniture Products Limited is the manufacturing company; furniture manufactured in this company is sold under the brand name of Zuari. Style Spa is only into home furniture, except for less than one percent of their customized services to some special institutional segments. Further, in home furniture category, Style Spa has positioned itself as specialist in 16
Bedroom Furniture. Bedroom furniture accounts for 65% of the total
sales.
Remaining
35%
is
from
living
room
and
miscellaneous categories.
3. Durian Industries Ltd: Durian is mainly into manufacturing of plywood, PVC doors, and decorative veneer. 1998 onwards Durian entered in furniture trading, which is importing and distributing in India. Durian currently
imports
furniture
from Malaysia,
China,
Thailand, Spain, and Italy. It is also into manufacturing, but only for some categories of furniture - chairs, modular workstations. 98 percent of Durian‘s Sales is from imported furniture and only 2 % is from domestically manufactured. Durian is present in both categories - Home as well as Office furniture. In case of Home furniture, it is present in almost all types of products. However, Durian has limited presence in case of office furniture – Office table, Office chair, Conference table and Book Shelves.
4. Tangent: Tangent is a chain of sprawling showrooms that put together everything an office or a home needs. The furniture is gathered from all over the world. Spain, Italy, Malaysia, France, Hong Kong with a firm grip on the international furniture pulse, when we feel that you might like some furnishing, we bring it down for you. Furniture designs at Tangent are renowned for their elegance, international appeal, durability and affordability Bedrooms and living rooms, cosy nooks and comfortable dens- our furniture will fit right into your lifestyle. Set for bedrooms and living rooms. Recliners, couches, sofas and 17
settees, loveseats, beds, dressers, dining tables… the list is endless. For your office needs, Tangent offers ergonomically designed contemporary
seating,
spacious
desks,
open
plan
office
systems, and much more. All of these are designed to utilize space in an optimum manner and promote productivity. Comfort and durability are the trademarks of our business furniture line. At Tangent your every space requirement will be met. We invite you to help us make your dreams come true.
INDUSTRY ANALYSIS FIVE FORCES MODEL:
BARGAINING POWER OF THE SUPPLIER
2. BARGAINING POWER OF THE CUSTOMER
3. COMPETITIVE RIVALRY
4. THREATS OF SUBSTITUTE PRODUCTS
5. THREAT OF NEW ENTRANTS
18
Low High
1. Bargaining Power of the Supplier: Low, as raw material is not only available from local abundant supplies but can be imported as well, with imports getting easier day by day Till date, Supply side is largely dominated by the unorganized sector.
2. Bargaining Power of the Customer: With fast growing middle class and changing lifestyle, huge demand is there. Only a limited number of dominant players are present in the organized sector. However, in absence of the latter there is a possibility switching to unorganized.
3. Competitive Rivalry: Industry
shifting
from
highly
unorganized
towards
organized sector Moderate competition among handful of players existing in organized sector.
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4. Threat of Substitute Product: No significant threat except for the possibility of new concepts like plastic furniture, virtual office space, traditional furniture, small homes. Such concepts might take years to come, but can have significant impacts.
5. Threat of New Entrants: Because of growing domestic market, large business conglomerates are planning to enter the industry in organized sector. (E.g. Reliance, Aditya Birla Group). At the same time, industry entry does not require very huge investments. No other significant barriers.
DRIVERS AND CHALLENGES FACED BY INDIAN FURNITURE MARKET
India is the fourth largest economy in the world and it’s the
largest democracy with
emerging
economies.
World
second largest GDP Bank’s
President
among
James
D.
Wolfensohn confirmed that India is not the world’s 4th largest economy after USA, China and Japan in PPP (Purchasing Power Parity). It is also one of the ten fastest growing economies in the world. With 1 billion populations, India remains on the fastest growing economies and even in the present worldwide economic slowdown, has maintained GDP Growth rate of nearly 6%. India today is 7th most attractive destination for foreign 20
direct investments, after US,
China, Brazil, Mexico
and
Germany. Besides, India offers higher rate of returns and profitability than anywhere else in the world. Out of 1 billion population the upper and middle class constitutes 20% or 200 million people (or 30 to 40 million houses). By rent per capita: •
•
2 percent of Indian has a per capita income in excess of 14,500 Euros, which means 20 million people.
•
8 percent of Indians have a per capita income of more than 3,900 Euros, which means 80 million people.
•
10 percent of Indians have a per capita income in excess of 3,200 Euros, this is about 100 million people.
•
•
The Indian market has been enormous with a large base.
Levels
of
affluence
are
high-
with
the
number
of
individuals in the “high: income demographic group doubling each year, according to NCAER statistics.
•
The actual “disposable” income at the disposal of the affluent Indian is as high as three to five times higher as the official statistics, on account of the very large proportion of unaccounted (“black”) money income.
21
•
The market has, due to exposure to overseas products and lifestyles, displayed the willingness and ability to purchase overseas brands and products at high prices.
•
Customs duties and tariffs have been drastically reduced, in keeping with government policy to open up the economy – a policy which has stayed constant despite changes in government. All the products in the INDEX product range are now permitted for import into India under OGL or the Open General License, which implies that no special import license is required for import.
•
Despite the cut in duties, the rate of customs duties is fairly substantial which makes the prices of products higher in India. There is a huge demand for furniture, hardware
and
fittings,
DIY
equipment,
lighting
and
consumer non-durable and appliances.
•
While the Indian middle class still does not have as high a rate of obsolescence as the US, and tend to use their furniture for several years before changing or upgrading, the actual size of this segment makes investment in this market more
than
worthwhile. The affluent classes
however, do have high rate of obsolescence of interior decoration products and redecorate constantly.
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All the above factors put together make manufacturers and retailers of a wide range of consumer durables. Several overseas companies have already entered the market and have been extremely well received by the market.
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