Furniture Industry of Ukraine and the World Economic Crisis 2020.

Furniture Industry of Ukraine and the World Economic Crisis 2020.

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Wed. 01.04.20
Good afternoon Dear colleagues Furniture makers and Designers. We have prepared a detailed article based on your many questions about what is happening and how you can minimize losses in the Furniture Business from the World Crisis 2020.

We answer the questions:

Cause-and-effect relationships why the World Crisis happened and how it affected the consumer goods markets to which furniture belongs.

The current state of the furniture industry and sales markets in Ukraine.

Our vision of the factors of the current crisis and recommendations for stabilizing the company’s work in the domestic market and the prospect of entering the foreign furniture market.

The “world crisis” happened in March 2020.

Factors that led to the systemic collapse of the World financial and commodity markets:

The geopolitical confrontation between the world economic giants, the USA and China, and the trade war for the last two years between these states.

Geopolitical game and military conflicts of the Russian Federation on different Continents and several theaters of military operations; Ukraine, Syria, Venezuela, Montenegro, Spain, France, England, Germany for the last 15 years.

Aggressive US economic policy towards EU countries protectionism of global American companies in the European market.

Withdrawal of Great Britain from the EU; reduction and weakening of sales markets and political component of the EU.

Weakening the influence of the NATO bloc on the security system of the countries of the parties to the treaty conflicts among the countries of the parties on the Syrian issue.

Strengthening Turkey’s Geopolitical and Military Influence in the Middle East.

General situation with refugees from third world countries in the EU.

Globalization of the world economy and transition to the 4th technological order with lengthening of supply chains

The revaluation of some assets and not prior to the valuation of other assets is one of the systemic errors of the global economy and public administration.

High rate of labor migration and emigration of the population.

A high degree of biological threats to humanity as a whole and risks due to their underestimation, lack of accumulated experience in responding to such challenges.

Connectivity and penetration of the information global network into all aspects of human and state activities.

The crisis of surplus and overproduction of consumer goods, food products in developed countries and a total deficit in third world countries.

Transition of an analogue monetary and financial system to a digital system backed by “gold” and real assets; earth, fresh water, food.

Changing the paradigm of energy carriers from hydrocarbon to clean and renewable natural energy; sun, water, wind.

Aging and degradation of the world’s elites, incapable of transforming states and societies.

As we can see from this rather long list, even three or five factors are already enough for a fall in stock indices of the largest economies and companies in the world.

Here are 15 of the most important reasons, and all of them have been overlapping one another since 2014. This led to a systemic collapse of the World economy and National economies of all countries without exception.

Here are 15 of the most important reasons, and all of them have been overlapping one another since 2014. This led to a systemic collapse of the World economy and National economies of all countries without exception.

For those who want more materials on this topic, there is an excellent article by our colleagues from the Khvilya publishing house.

https://hvylya.net/interview/203453-krizis-mirovoy-sistemy-processy-sobytiya-logika-deystviy-i-novaya-borba-za-mirovoe-gospodstvo

What about the International and Domestic Markets?

Many European countries, as well as the United States and a number of countries from Asia and Ukraine have introduced restrictive measures on entry and exit from the country, and also significantly limited their citizens in freedom of movement within the country, region, settlement, street.

The governments of some European countries have significantly restricted or imposed a temporary quarantine ban on the work of such industries.

In fact, the market for consumer goods in the EU countries stopped and began to adjust in certain segments in the United States. The Chinese market also dropped significantly and in many market sectors fell to 40%

International and domestic tourism.

Exhibition business.

Event business.

Entertainment industry; cinemas, internet cafes, amusement parks.

Entertainment industry; cinemas, internet cafes, amusement parks.

Passenger transportation by air, rail, bus, sea and river.

HORECA hotels, restaurants, bars are completely closed or work in a special mode.

Beauty industry.

Fitness and sports clubs, swimming pools, gyms

Office centers and Shopping centers

Retailing non-essential consumer goods including furniture.

Allowed to work during the quarantine period:

Energy industry

Agrarian industry

Food and processing industry.

Mechanical engineering, machine tool building and instrument making.

Production of non-essential consumer goods, including furniture, unless local or national restrictions are imposed due to quarantine.

Pharmaceutical companies.

Medical institutions and pharmacies.

Veterinary institutions and pharmacies.

Stores with food and basic necessities.

Hardware stores.

Gas stations.

Transport and logistic.

Administrative government organizations.

Utilities and city services.

Army.

Security and law enforcement bodies.

National and local critical infrastructure systems.

Online sale of food and consumer goods.

Remote work of employees of IT companies, online services and creative industries.

Current state of the Ukrainian furniture sales market.

We see the following situation, when a significant part of the national and world economy has not just contracted in quantitative terms, but “has become a long pause or shutdown”

The furniture industry of Ukraine has found itself in a “shutdown” situation since March 2020.

Consumption of products in various segments of furniture decreased from 30% to 70%.

In some segments, such as HORECA and the Mass Entertainment Industry, which were subject to the most stringent quarantine measures, the consumption of furniture products fell to 90%.

Also, the sector of kitchen and residential furniture of the cheap and middle segment suffered significantly, where the population planned purchases and were forced to postpone them until a quieter period.

This is due not only to the quarantine situation in Ukraine, but also to the consequences of the internal political crisis and unprofessional economic policy.

Which in the period from September 2019 to the current period 2020 hit hard the income part of the population and forced many households to review and redistribute their family budgets.

Foreign business also did not stand aside and continued to roll up assets and leave the Ukrainian economy.

What are the exits from the market or suspension of activities of the largest taxpayers of the tobacco companies FMU and JTI.

In a situation of a fall in industrial production by more than 10% and a state budget deficit, our government introduces a restrictive quarantine and, in fact, stops the entire economy of the country in one day.

Shopping and office centers are temporarily closed everywhere.

The staff is transferred, whenever possible, to work remotely from home. The metro is being closed and public transport is restricted.

This has a profound effect on all sectors of manufacturing, retail and service companies without exception.

The population in a panic mood is stocking up on buckwheat, toilet paper and the simplest means of protection.

You have to forget about consumer goods that are not essential to which furniture belongs.

What furniture companies should do now.

A systemic collapse of sales markets begins not only in the furniture sector but also in all sectors of the Ukrainian economy.

Everyone is beginning to remember the crises of 1998-2000, 2007-2009, and 2014-2015 and act in a stereotyped manner according to the “typical scenario”.

This is possible, but you have to be very careful.

1.Schedule costs where we can and where we cannot:

We will do without advertising.

We will do without strategic and sales marketing.

We will do without a new assortment in the product.

We will do without HR service.

2.Staff:

We halve the salary, without reconsidering the workload and tasks.

We send everyone on unpaid leave.

We fire employees indiscriminately.

3. Collapsing:

Moving production to a smaller room.

We are closing retail outlets and stores.

We refuse PPR and service repairs.

We sell equipment and tools.

If the company just wants to “survive and get through the hard times” it will work with something a little better and something a little worse.

Much is not at all the same as in past crises and “old chips” may not work.

It is also necessary to take into account the strength of the “information field” and not allow public showdowns with staff and clients now, not 2000, when no one will know.

You need to maintain your business reputation, you still need it.

Factors of the crisis in Ukraine for the Furniture business that must be taken into account:

The affairs of all, without exception, furniture companies and not only companies went sharply badly, which means that you can sell “business” or sell equipment either “for nothing” or “to no one”.

If you are renting premises, then the issue of revising the cost of rent or rental vacations will be very appropriate.

The staff is also in a state of “shock” as total unemployment looms, and the threat of infection anywhere on the way to work from work, and at work itself. This puts them in the fork of the social choice “conditional safety of themselves and their loved ones” or “conditional income without a guarantee”. This will have to be taken into account in personnel policy.

Quarantine measures and restrictions may not last for two weeks or even two months, so we calculate options for a period of six to twelve months at least.

Due to the long quarantine, the population may simply run out of savings and may create a time of “chaos and anarchy”, it is necessary to take care of protecting the territory and strengthening the collective security regime.

The supply chain of imported and Ukrainian-made raw materials and materials will be significantly disrupted; it is necessary to look for and offer replacements and alternatives.

Overloading communication channels can lead to loss of control and disruption of commercial communications. Create backup communication channels and service chats, you can also use radio stations.

You need to record business losses, new terms of lease and supply agreements, and you need competent lawyers.

In a period of total uncertainty, there will be no delays in payments for raw materials and materials, and you yourself also do not enter into risky transactions with deferred payments for your products.

Not everything can be translated into “remote work or HOME OFFICE” especially real physical production. Think about the safety of your employees in the workplace, facilities and on the road.

Not all companies are ready or able to work in digital sales and communication channels. Get ready to tackle possible communication failures.

Our recommendations:

АBC analysis:

А

Product – in serial production only category A with a minimum warehouse stock, we ship only after 100% payment.

Site and point of sale – shrink to category A

Promotion – advertise and push category A

Personnel – we guarantee wages and all payments of this category only.

В

We take the product – category B under the order only after 100% prepayment.

Platform and point of sale – we sell by visualization and website.

Promotion – only with minimal forces within the site.

Personnel – If State A does not cope, we attract employees of State B sent by us on “vacation at our own expense”.

С

We do not manufacture the product temporarily.

Site – temporarily withdrawn from retail and site or totally sold out.

Promotion – we do not promote and do not spend the client’s attention on him.

Personnel – we fire employees who do not create “added value” and do not service the product and do not bear the costs for this.

The format of work with the client.

For production on individual orders, the product is renamed “client”.

We work according to the scheme payment in 70% advance + 20% before shipment to the client and 10% after installation.

For e-commerce affiliate sales, there may be an exception to payment after sale with a grace period of 18 days.

The most important thing.

1. Select the product or service that will be necessary, useful and of high quality even in this difficult time.

2. Make content that “sells” your products (product + content = product) !!!

3. Make a selling website !!! which has quality images and infographics, description, specifications, price, availability or delivery time.

4. Go product to partner e-commerce ROZETKA and others.

5. Promote the Site, Company, Brand, Products by all possible and not possible means in the Internet channels. Google, Facebook, Instagram, Linkedin, YouTube, Pinterest constantly every day.

6. Communicate with your partners and clients; suggest, enter into dialogue, find solutions.

7. Create new products and show them to the consumer.

8. After you have completed the first five points You need to prepare the Product for Export.

9. Take into account the past “mistakes” of building production based on massive cheap labor and invest in automation and CNC machines.

10. Improve your processes, product, and service even during this challenging period.

Ukrainian market:

With the simultaneous tightening of quarantine measures for the population that is included in the “risk group” will be gradually removed from the temporary quarantine restrictions of the industry and business sector.

This process will be quite lengthy and will take from 3 to 12 months.

Therefore, one cannot expect a quick recovery of the Ukrainian economy and the return of the Ukrainian furniture market to the indicators of the summer of 2019.

The internal and foreign political situation will leave its negative imprint in the process of economic recovery. The threat of a military invasion of the Russian Federation or a “non-friendly takeover” through federalization.

All anti-crisis steps on the Ukrainian market must be thought out, calculated and rationally taken into account the described risks.

Export Markets:

The markets will begin to partially open in 2-3 months, the full opening will come in 6-12 months, 2-4 trillion dollars will be invested in their own countries of the United States, EU countries, Great Britain, China, Australia, Japan to support the population and business.

Already now it is necessary for Ukrainian furniture companies to plan activities to enter foreign markets and create new-generation products for the era of hybrid digital spaces “Home & Office Space”.

We see emerging changes in the office furniture and home office sector, hallways and living rooms will also be attracted significantly.

Hotel rooms will also undergo changes to provide more security and easier sanitation and hygiene.

Then the search will begin for someone who will do it efficiently, quickly with good service “Product for the era of global changes”.

P.S.

The full cycle subject design studio “SV & Partners” is in the forefront of innovative companies and is ready to present to its partners comprehensive solutions in strategic marketing, subject design and anti-crisis consultations.

To be continued!

Author’s Text Valery Sukhitsky

CDO full-cycle product design studio SV & Partners.