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Furniture channels are gradually sinking, customizing the growth rate of enterprises or accelerating
The furniture industry has experienced significant growth, driven by both exports and domestic sales. However, the focus is gradually shifting from international markets to the domestic front. Brand competition is expected to become a key driver in the future. Over the years, the proportion of export revenue for China's furniture industry has declined from 37.45% in 2008 to 23.49% in 2013. While the export sector has maintained a CAGR of 7.27%, domestic sales have grown at a much faster pace, with a CAGR of 21.1%. This shift indicates that the domestic market is becoming more important, and it still presents vast untapped potential. With the market not yet mature, no single brand dominates, offering opportunities for strong brands to gain market share.
The industry’s growth rate has remained stable over the past three years, averaging 17.8%. Looking ahead, it is expected to maintain a steady growth of around 15% in the coming years, which is more consistent than the pre-financial crisis era. To keep up with this growth, companies must adapt to changes in domestic demand. We anticipate a "dumbbell-shaped" demand pattern: on one end, the rising middle and upper classes are driving demand for high-end, personalized furniture; on the other end, urbanization is bringing more rural populations into cities, increasing demand for affordable, basic furniture options.
Currently, the overall concentration of the furniture industry remains low. The CR10 for China's furniture industry stands at just 3%, compared to 40% in the U.S. This low concentration is largely due to the wide income gap, which leads to diverse product demands. The presence of numerous small and medium-sized manufacturers supports this fragmented market. However, certain sub-sectors, such as mattresses and custom furniture, show signs of increased concentration. Drawing from the U.S. model, we believe that these segments will see greater consolidation in the future, with leading brands and those with technological advantages capturing larger market shares.
Large furniture companies have demonstrated strong cost control, with gross profit margins steadily improving. While the average gross margin for Chinese large furniture firms is around 40%, this is still lower than the 81.48% seen in the U.S. However, their better cost management provides room for expansion and brand development. In contrast, smaller companies struggle with low gross margins (around 15%). As large firms optimize their operations and increase advertising spend, we expect their gross margins to rise further, making their long-term prospects increasingly promising.
Furniture companies that have established deep distribution networks can grow more rapidly. Regions with weaker consumption power often show higher growth potential when stimulated by targeted efforts. With similar growth rates across different regions, we believe that developing areas will see stronger household consumption growth compared to more developed ones. Additionally, real estate sales in second- and third-tier cities are currently outperforming those in first-tier cities. This trend suggests that furniture companies with well-established local channels are well-positioned to expand their sales quickly and capture new market opportunities.