Dhe hot real estate market is causing increasing problems for the furniture industry in Germany. “We have a new tough competitor: the development of housing costs,” says Thomas Grothkopp, managing director of the furniture and kitchen trade association (BVDM). The unhealthy increase in purchase and rental prices for apartments and houses, the high real estate transfer taxes, but also the cost increases for electricity, gas and water would tie up those purchasing power that cannot be invested in furniture and kitchens.
In addition, there is a decreasing willingness to move because every new purchase and rental contract is associated with painful additional costs. “But if fewer apartments are moved, less will be spent on a new facility,” complains Grothkopp ahead of the International Furniture Fair in Cologne (IMM Cologne), the largest of its kind in the world with almost 1,300 exhibitors.
The will is definitely there. At any rate, this is shown by a current survey by TNS Kantar’s market researchers on behalf of the Association of the German Furniture Industry (VDM). According to this, almost ten million households in Germany can imagine buying new furniture in 2020. The will to buy is particularly great in the younger population groups. “There is no shortage of potential demand,” says VDM Managing Director Jan Kurth. On average, almost 2600 euros are reserved for furniture in the annual budget per household, the study showed. 17 percent of the respondents would even plan with more than 5000 euros.
But surveys are one thing. What consumers actually buy is another matter. After all, it is not only the housing costs that burden the budget, which is actually profitable due to low unemployment and rising incomes. There is also competition from other consumer goods such as consumer electronics, but also from travel, cars and e-bikes. And all of that was more popular than new furniture recently.
People buy pots instead of kitchens
The optimism of the furniture trade and industry has also been great in the past two years. In 2018, however, the production figures of domestic manufacturers stagnated; in 2019, the medium-sized sector even lost sales. The trade was already in the red in 2018, but in 2019 there could be a plus, reports the BVDM. The association predicts that revenues will increase by four percent to 32.4 billion euros.
“However, this is not due to the furniture,” says Grothkopp, managing director of the trade association. Rather, the significantly expanded marginal ranges would play an increasingly important role, for example pots and dishes, lights and candles, pillows and blankets or picture frames and decorative accessories such as vases and bowls.
So items are bought that are not nearly as expensive as the furniture itself, but that can nevertheless give the household a new look. Cupboards, beds, chairs and shelves mean that Germans simply use them longer. The trade therefore reacts with the usual reflex: a big discount battle.
In brochures and radio spots, consumers are promised discounts of 25, 50 and sometimes up to 75 percent, above all from industry giants such as XXXLutz and Höffner or Segmüller and Porta. However, this has left many consumers doubting the credibility of retailers. VDM representative Kurth refers in this connection to a study according to which customers consider discounts of more than 40 percent to be unrealistic.
Furniture stores on the green meadow are empty
The result is a drop in frequency, especially for the large furniture palaces on the green lawn. “The volume marketers often complain about declining sales and vacant houses,” says sales representative Grothkopp. Small specialist retailers, on the other hand, especially in inner-city locations and without excessive red pencil campaigns, would increasingly see growth. “Today there is a clear preference among younger buyers for hip locations in thriving cities,” says Grothkopp. “Even for furniture and kitchens, there must be accessibility without a car, combined with the delivery of the goods.”
Few companies have an answer. Market leader Ikea is one of them. The Swedes no longer build large furniture stores on the green field. Instead, there should be comparatively small supermarket-sized shops in the city centers, so-called touch points. Only parts of the range are then presented and offered for testing. Instead of taking the goods from a previously self-sufficient self-service warehouse, they are conveniently delivered to your home.
Other large traders, on the other hand, are more reluctant. “With regard to city locations for individual segments, we currently see no acute need for action for us, but of course keep that in mind,” says XXXLutz, for example, on request. Instead, the industry giants stand out by taking over smaller competitors. We are now talking about an “unprecedented process of concentration” in the furniture trade in Germany, Austria and Switzerland.
Experts are surprised. “Size alone is not synonymous with strength”, analyzes Timo Renz, partner at the management consultancy Dr. Wieselhuber & Partner. The challenge of becoming a more attractive area for customers remains as before. “And last but not least, the success of retailers will be measured by the extent to which they really succeed in developing classic stationary formats in the direction of omni-channel retail.”
Influencers get their own tour of the fair
What is meant is the integration of stationary business with online trading. Internet orders are also becoming increasingly important for furniture, especially among young target groups. Around ten percent of industry sales are currently generated online, especially by providers who are not originally from the industry. And that just seems to be the beginning. Industry representative Kurth expects an online share of 25 percent in the medium term. “Because consumer behavior is changing rapidly.” At the Cologne Furniture Fair, its association even offers its own tour for influencers and bloggers.
Manufacturers now want to take a part of the growing online business – for example by setting up their own web shops or via platforms such as Amazon, Otto, Wayfair and Möbel.de. “The entry hurdles for own sales are much lower today,” says the VDM managing director, according to which the industry wants to get in closer contact with the end customers. “The industry is currently selling well below value,” complains Kurth. The reason: The dealers are much larger and can therefore dictate the conditions to the manufacturers, above all through the strong purchasing associations in the furniture industry, which handle around 70 percent of the purchasing volume in the market.
If the industry is now gaining in format, that could also be to the benefit of the consumer, Kurth says: on the one hand, because then there is no longer an intermediate filter that determines the design, shape and color and thus specifies the taste. Even the BVDM trade association fears an increasing trend towards standard furniture due to the increasing concentration in the industry due to the bundled purchasing.
On the other hand, pieces of furniture could reach the consumer more quickly if they were not first delivered to the dealers’ warehouses and transported from there to the customer. “Ordered goods are in the retail warehouses longer than the industry needs for production,” says the VDM boss. Especially in times of online trading, however, it is hardly justifiable if goods only reach the consumer eight to twelve weeks after the order has been placed.