If there is one foreign brand killing it on China’s furniture market, it is without a doubt IKEA. So let’s have a look at the reason for the major success of the band in the mainland!
The Performance of Ikea in China
As the world’s largest furniture retailer, Ikea is famous for its ready-to-assemble furniture selling model and modern architectural designs on kinds of appliances and furniture. Although it has been continuously implementing low-end business strategies around the world, Ikea re-positioned its image to be stylish in China in order to make visitors feel they have a fashionable taste for choosing house decoration stuff. Therefore, after Ikea entered China, a trend emerged among young generations of Chinese that hanging around at Ikea furniture mall is an exciting and leisure activity.
If we look at the financial results of Ikea to analyze the performance of Ikea China, it can be easily found out that Ikea is driving on a speed train and is in a burgeoning market. Last year (by August of 2012), Ikea China generated over 540 billion RMB of sales which is a 21% increase in sales. As for the number of customer visits in their brick-and-mortar stores and online mall, research showed that more than 15 million people and 24 million netizens have been experiencing the services of Ikea offline and online respectively.
At the same time when that financial report was released, Mikael Ohlsson, the CEO of Ikea Group, told that China is going to be the second-largest marketplace for Ikea in the world and possibly overcome other counties’ subsidiaries to be the most powerful force in sales in the future. With already 11 stores in China, Ikea expects to expand its reach to many more cities with a total of 40 stores in China by 2020. However, is Ikea able to keep grabbing this momentum over time?
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Competition with Local Furniture Sellers
Hola, a brand from Taiwan, is regarded as the fiercest rival of Ikea in the house decoration market in China. On one hand, the expansion speed of Hola stores over the country is far beyond the one of Ikea, in terms of density of stores in each city, and in terms of ability to snatch market blind spot. For instance, Hola could be seen as a latecomer who stepped into the mainland China market and scratched from Shanghai Bailian Xijiao Shopping Mall only in 2004 (which is 6 years later than Ikea). As for now, the total number of Hola stores in mainland China has already reached 11 which is 2 times the amount of Ikea stores. On the other hand, in order to strengthen its core competitive forces against Ikea, Hola carried out a series of changes that include shortening the period of new product updates, accelerating the speed of design created to support sales during special festivals, and enriching the categories of goods. Last but not least, Hola chose to enter a big shopping mall downtown to benefit from its high visitor flows instead of purchasing a place to build its own stores.
Overall, Hola’s fast expansion could attract some Ikea potential customers who are not willing to commute to Ikea which is always located in suburban areas.
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Threats from OEM Factory and Online Shopping Mall
TMall, the B2C platform added to Taobao’s initial C2C marketplace, and focusing on quality-brand name goods in China, achieved 3,400 billion RMB sales for house decorating and furniture market in 2012, the equivalent of a 300% y/y growth. Among various sub-categories of this whole market, the growth rate of the furniture section is the largest (324%). We can see that there is a trend in the furniture market: e-commerce website is gradually emerging to be another sales channel.
When we type “Ikea style chair” in the TMall search engine, we can receive tons of pages of results that look like Ikea products but which are actually not exactly the ones produced by Ikea. After a thorough investigation, we found that plenty of companies is selling furniture which is similar to Ikea’s. Ultimately, what do we find?
Jiayimei, an alliance of factories that used to be OEM factories of Ikea! This company is skyrocketing in terms of sales. The most compelling point on this company’s official page on TMall is the huge slogan of discount. For customers, they can get almost the same quality product directly from factories but with a better discount which is definitely lower than Ikea’s. Cao Yuewei, the general manager of Jiayimei, revealed that sales of a single day of Jiayimei reached more than 2 million RMB on the day of great sales promotion organized by TMall on November 11th (equivalent to Black Friday in China).
Past OEM partner has become the present competitor of Ikea. This phenomenon indicates that online shopping is the new battle for furniture markets. Design creativity, delicate handicraft skills, and super cheap prices help make sure those factories could grab a footprint in the Chines furniture market.
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Written by Limo from Daxue Consulting