FB Pixel no scriptChina’s furniture makers tread new waters amid global market changes | KrASIA

China’s furniture makers tread new waters amid global market changes

Written by 36Kr English Published on   9 mins read

As profits thin, Ningbo’s leading furniture sellers are evolving with the times, devising new strategies to stay afloat.

Situated along China’s East China Sea coastline is Ningbo-Zhoushan Port, one of the country’s oldest seaports. In 2023, nearly 1.324 billion tons of cargo passed through this bustling gateway.

Thanks to the thriving port economy, Ningbo has become a significant hub for numerous export-oriented industrial clusters, with the home furnishings industry standing out prominently. Ningbo hosts the largest and most significant sellers of large furniture in China. Among Chinese furniture sellers with annual sales exceeding RMB 500 million (USD 68.7 million), half are headquartered in Ningbo, leading with brands such as Loctek, Aosom, and Hooya.

Northwest of Ningbo lies Anji County in Huzhou, known as the “hometown of chairs.” Anji focuses on exports and is the largest production base for swivel chairs in China, as well as the world’s largest base for office chairs. Renowned chair producers like Henglin and UE Furniture operate in this region.

However, China’s furniture industry is currently facing significant challenges, making it one of the hardest markets to profit from. Domestic demand is slowing with limited growth, and over the past two years, overseas markets have been affected by interest rate hikes, weakened demand, and channel inventory issues, putting pressure on exports.

Additionally, rising labor costs, rapidly changing international trade policies, and the predominance of original equipment manufacturers (OEMs) in export trade have all posed growth bottlenecks for traditional furniture makers. Behind the massive scale lies the awkward reality of increasingly thin profits.

To adapt, cross-border e-commerce has emerged as a common option.

Home furnishings, primarily medium to large items, incur high logistics and storage costs. The furniture industry is relatively traditional, with products prone to homogeneity. In 2022, home furnishings ranked fourth in the subcategory rankings on Amazon’s US site, making it an important niche product category.

While Zhejiang-based furniture companies benefit from years of export experience, many cross-border e-commerce practitioners entered the field earlier, leveraging first-mover advantages in manufacturing, scale, and capital to become key platform sellers. As a result, there are fewer opportunities for traditional furniture manufacturers to catch up.

Moreover, building a brand is not an overnight endeavor. For ergonomic furniture products, due to their long history, many well-known brands have established strong market recognition and competitiveness abroad. Companies like Denmark’s Linak, founded in 1907, and Herman Miller in the US, are highly recognized, occupying significant market shares in both traditional retail and e-commerce platforms.

Despite the difficulties and bottlenecks, companies in Zhejiang have managed to sail on amid the market’s ebb and flow.

Playing catch-up as latecomers

In less than a year, Henglin achieved the top sales in the home furnishings category on TikTok. According to data from Ebrun, during last year’s Black Friday, Henglin’s store achieved sales of USD 1.5–1.75 million in three days, significantly ahead of second-place Wyze, which raked in around USD 500,000–750,000.

While these results on TikTok may seem insignificant compared to Henglin’s overall performance and scale, they are nonetheless crucial.

Henglin is well-known in Anji, being one of the three listed chair companies in the area. Founded in 1998 and listed in 2017, Henglin is one of the largest manufacturers and exporters of office chairs from China. Its products include office chairs, panel furniture, sofas, and PVC flooring, with last year’s revenue reaching RMB 8.195 billion (USD 1.1 billion).

In the cross-border e-commerce industry, Henglin is a relative latecomer, officially entering the field in 2019. At that time, Henglin began selling products under its own brand, Nouhaus, on third-party platforms like Amazon. Nouhaus positioned itself as a mid- to high-end brand, with products generally priced above USD 200.

A recent comparative review shows significant changes in Henglin’s exploration of cross-border e-commerce, with cost-effectiveness and differentiation part of its new strategy.

According to research conducted by Zheshang Securities, Henglin’s core strategy involves referencing popular, verified products on platforms like Amazon, leveraging supply chain advantages to reduce prices, and achieving high net profit margins through cost-effective products.

For example, as of January 23, 2023, the best-selling bedroom storage cabinet on Amazon was a product from a Chinese brand, listed in September 2018 at USD 45.99. Henglin, recognizing the product’s strong market performance, listed a similar product in April 2023, with similar design attributes, weight, and volume. However, thanks to supply chain advantages, Henglin’s similar product was priced at USD 35.99, significantly lower than its competitor. After listing, the product quickly climbed to the third spot in the market ranking due to its high cost-performance and similar product attributes.

Finding such products and using cost-effectiveness to undercut competitors has been Henglin’s almost infallible strategy. Zheshang Securities’ statistics show that Henglin’s core brands had 61 SKUs in Amazon’s US site’s bestseller list last December, with an average sales volume of 2,160 units per product, demonstrating a significant scale effect.

Henglin’s advantage lies in its long history of export development, combined with capital accumulation post-listing, enabling comprehensive upstream and downstream production capabilities in major home furnishings categories. Its production capacity is spread across China, Vietnam, and Switzerland.

Zheshang Securities believes that, due to Henglin’s diverse cross-border e-commerce product range and significant proportion of Vietnamese supply, optimization of the Vietnamese supply chain and increased supply proportion can further reduce tariff costs and enhance product cost-performance.

The data supports this conjecture. In December, Henglin’s core brands’ main sales categories were products in which the company has production advantages, such as home desks, office chairs, and panel wardrobes.

Unlike traditional cross-border e-commerce companies, Henglin mainly operates under the Vendor Central (VC) model on Amazon. For its core brands, the VC model accounts for 95.2%, compared to only about 11.2% for Ziel Home Furnishing Technology’s core brand, Songmics, in the US region.

VC accounts on Amazon are scarce despite low competitive pressure, low commission rates, and marketing costs borne by Amazon. This mainly stems from the downside of long payment cycles and limited profits, with stringent requirements imposed based on company qualifications.

For Henglin, as a longstanding export furniture manufacturer, cost control has always been a strength. With its own overseas warehouses in the US, Henglin can further reduce storage costs. Amazon’s participation in product operations and marketing allows Henglin’s cross-border e-commerce team to focus on developing new platforms and channels.

In response to inquiries this May, Henglin said that its e-commerce business achieved revenue of RMB 1.621 billion (USD 222.7 million) in 2023, accounting for about 20% of its operating income. By the first quarter of 2024, cross-border e-commerce revenue is expected to account for over 30% of total revenue. In 2023, Henglin joined platforms like TikTok Shop and Shein, and in 2024, it launched with a semi-managed model on Temu, having already entered its US site.

Charting a different path

Zhejiang-based Loctek is another key example, delving into cross-border e-commerce earlier than Henglin, likely due to its closer proximity to the sea, yielding higher profit returns.

Loctek’s revenue scale is only half that of Henglin, but the profit levels of both companies are similar. Henglin’s gross margin has consistently been around 20%, while Loctek’s gross margin is over 30%.

Specializing in ergonomic furniture products, Loctek launched its FlexiSpot brand in 2016, offering a diverse range of ergonomic products, including height-adjustable desks, desk bikes, and more.

Loctek’s products are highly profitable but still in the early stages of establishing brand influence overseas, with limited growth opportunities despite contributing significantly to revenue. Thus, Loctek has explored upstream, investing heavily in overseas land acquisition, warehouse construction, and storage business development as new growth areas. Last year, Loctek’s net profit grew by 189% year-on-year, with half of the profit surge attributed to revenue from selling overseas warehouse space.

In 2022, Loctek announced a plan to sign a contract with a leading Chinese shipyard for building a container ship with a twenty-foot equivalent unit (TEU) of 1,800, costing USD 32.6 million.

Buying land, building warehouses, and facilitating shipping logistics indicate that Loctek does not just want to be a cross-border e-commerce seller.

Xiang Lehong, chairman of Loctek, said in an interview with 36Kr last year that he firmly believes in the value of land near ports on the west and east coasts of the US. “I’ve experienced a surge in storage rental prices. From a long-term perspective, you must own your warehouses, otherwise, you can’t afford the rent. It’s like renting a restaurant in downtown Shenzhen—the rental cost is high, so you must own your property to lock in costs,” Xiang said.

Xiang could be right. As cross-border e-commerce rapidly develops in China, the demand for overseas warehouses is soaring. Platforms like Temu and Shein are aggressively promoting merchants to adopt semi-managed models, seeking cross-border sellers with overseas storage capabilities to enhance delivery speed and alleviate logistics pressure, inadvertently fueling the demand for third-party public warehouses among sellers.

By the second quarter of 2023, the average rent for industrial warehouses in the US reached USD 9.59 per square foot, up 16.01% from the same period last year, with approximately 139.5 million square feet of industrial warehouses completed. Land near core US ports is becoming increasingly scarce, with higher costs for new overseas warehouses.

Large and bulky products are more sensitive to warehouse and logistics prices. In February 2024, Amazon announced adjustments to its Fulfillment by Amazon (FBA) delivery fees for large and bulky items. This included redefining item size categories and fees, resulting in a logistics price hike of over USD 10 for items weighing over 50 pounds.

According to Kuajingyan’s statistical data, large and non-standard home and garden products have the highest share of overseas warehouse shipments, with a significant increase in 2022, rising from 30.90% to 41.77%. Additionally, orders for consumer electronics, commercial and industrial products, health and beauty, and toys and hobby goods have also increased.

Overseas warehouse shipments for large items are more cost-effective. For instance, for Ziel, the self-shipping model’s transportation costs are about 10% lower than Amazon’s FBA. FBA’s fee hike for large items further widens this cost difference, prompting more sellers to switch to third-party warehouses.

Loctek’s overseas warehouse business mainly serves large and bulky products. Since 2020, Loctek has fully promoted public overseas warehouse services, primarily for sellers of furniture and fitness equipment that weigh over 30 pounds. By the first quarter of 2024, Loctek had 13 self-operated overseas warehouses worldwide, covering a total area of 362,400 square meters in regions near key ports in the US, Germany, Japan, and other countries. Ten warehouses in the US are primarily used for public overseas warehouse services and self-use.

It’s worth noting that the overseas warehouse business is not as profitable as Loctek’s ergonomic furniture products. Thus, the increased proportion of the overseas warehouse business has affected Loctek’s profit margins.

Although the overseas warehouse business is less profitable, it has significantly boosted Loctek’s earnings. According to Loctek, the annual holding cost of its California warehouse on the US west coast is USD 4.51 per square foot, while the market rental rate for the first three quarters of 2023 was USD 13.73 per square foot. In 2022, Loctek implemented a “small warehouse for large warehouse” strategy, acquiring land at lower costs and selling small warehouses to increase storage capacity and utilization. By 2023, Loctek had purchased a total of 814.5 acres of land and sold four small overseas warehouses.

Loctek has plans to delve further. In June 2023, Loctek launched a capital raising plan to raise up to RMB 500 million, with RMB 400 million (USD 54.9 million) earmarked for constructing an overseas warehouse project in Ellabell, Georgia. By the end of 2027, after the project reaches full production, the total area of public overseas warehouses in the US is expected to reach 339,300 square meters.

Additionally, as Loctek’s ship began operation last year, the ship leasing business generated RMB 7 million (USD 962,000) in revenue in the first half of 2023. The container ship’s transport cycle from Ningbo to the US west coast is only 15 days, half the time taken by large liners.

Affected by the situation in the Red Sea, global shipping prices have continued to soar. Loctek’s decision to build a ship amid soaring shipping prices in 2022 was controversial, but now the bet appears to have paid off.

Currently, Loctek is gradually transforming into a provider of logistics and supply chain management solutions, integrating overseas warehousing, first-mile shipping, dropshipping, FBA transfer, after-sales management, export agency, and supply chain services. In the future, Loctek plans to further integrate freight forwarding to enhance its bargaining power while exploring end-to-end shipping services.

Henglin and Loctek, both long-time export enterprises, have shipped countless goods out of the port in Ningbo. As the era’s dividends approach zero, the cost of a complete turnaround is too high. Instead, both companies, through upstream and downstream integration, continue to navigate the changing business landscape with agility.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.


Auto loading next article...