“Growth factor” of the furniture business in Ukraine in 2020-2025.
“Growth factor” of the furniture business in Ukraine in 2020-2025.
Good afternoon colleagues Furniture makers and Designers.
We continue the cycle of thematic materials on the Ukrainian Furniture Business during the World Economic Crisis.
We have prepared an article about the growth opportunities of the Ukrainian furniture business in the face of a decrease in domestic consumer demand and a partial or complete stop of export markets during this difficult period.
The third part of the vast information layer that we have worked out over the past six months of this year.
We hope that this material will be a kind of transformation roadmap for many Ukrainian furniture companies.
A short background.
During the onset of the winter-spring 2020 crisis, our materials were published on the situation in the Ukrainian furniture business.
You can get acquainted by clicking on the links.
Part 1. Article Furniture Industry of Ukraine and the World Economic Crisis 2020.
Part 2. Article “Zero point” Ukrainian Furniture Business 2020.
Limitations equals Opportunities.
Base of components and furniture accessories.
Lack of production facilities for the manufacture of furniture fittings and components in Ukraine.
During the years of the USSR and independent Ukraine, the production of furniture fittings was not the most advanced and large-scale.
The main needs of the domestic market for high-quality fittings were covered by imports from the GDR, Czechoslovakia and Poland.
Traditionally, local production has made simple, primitive fittings for serial products.
The art and craft workshops housed high-level products for special government orders.
The current situation in Ukraine due to quarantine measures and cargo transportation from China by sea has imposed significant restrictions on the range and availability of the necessary furniture fittings and components.
The question has ripened whether Ukraine needs its own competence in the production of furniture fittings and components.
It should be noted that in Ukraine, a certain range of furniture components is already being produced at a fairly high level:
We mastered the production of fittings and components in Ukraine.
Supports for office and residential furniture.
Furniture fronts from MDF and Wood.
Steel bed frames and slats.
Components and mechanisms for office chairs and chairs.
Furniture handles made of plastic.
Plastic elements and plugs.
Brass furniture handles.
Furniture boxes for kitchens and wardrobes made of wood
Furniture edging PVC and paper melamine.
Kitchen sinks made of composite and mineral materials
Furniture profile and pipe made of steel.
Furniture aluminum profile.
Polymer profiles and silicone seals.
Foam rubber and other polyurethane foam.
Furniture fabrics for chairs and armchairs.
MDF profiles wrapped in paper or veneer.
Adhesive based on PVA dispersions and putty.
Varnishes and paints.
We can hope for the development of this sector of the furniture industry and the formation of medium and large production facilities will take place under the slogan “buy Ukrainian”.
But there are also scarce items that are brought from China or Europe, since local production will not be able to master this range without multi-million investment in equipment and technology.
We buy massively accessories and components in China, Turkey and EU countries.
Hinges of various types of opening.
Handles made of ZAM alloy with electroplated coatings.
Extension mechanisms for drawers.
Wire products with galvanized coatings.
LED strips and electronic components.
We estimate that a minimum of € 100,000,000 must be invested in these scarce categories of furniture fittings to achieve economies of scale and a significant competitive advantage in the domestic market.
With such investments, it will be possible to come out with offers of accessories to the markets of Eastern Europe and the USA.
This is a good opportunity for strategic and long-term investments.
HR policy and competence outsourcing.
For the first time in a five-year cycle, there was an opportunity to attract competent personnel from other industries to the furniture business on a project basis or to the company’s staff.
A lot of labor resources have been freed up in the furniture-related and digital industries due to the difficult situation on the labor market as a result of the economic crisis and the COVID19 pandemic.
During the past crises, the furniture industry mostly lost qualified and competent personnel, they were successfully lured away and taken away by rapidly growing sectors of the economy in Ukraine and abroad.
Talented managers and managers moved to more profitable and stable sectors of the economy, not related to furniture, such as Development and FMCG.
At the level of engineering and design specialists, designers, engineers, there was an outflow to the gaming and IT industries.
Today, it is very important not to repeat the mistakes of the past and to offer balanced market salaries and working conditions when recruiting qualified specialists.
Only in this case it is possible to organize the inflow of “talents” and the rejuvenation of the industry as a whole.
Gaining relevant and useful experience from other industries and building cross-functional teams in the furniture sector.
Separately, it is necessary to note the work of remote employees, freelancers and external studios / development bureaus.
With the introduction of restrictions on movement, it turned out that it is possible and this also works.
For many small and medium-sized businesses, it will be effective to buy service packages or hours of work of specialists, external teams than to build full-fledged departments with functionality that is not needed every day for 8 hours.
It is also possible to significantly reduce the occupied area in the office and the cost of purchasing expensive specific equipment.
Today, the optimal balance of cost / efficiency between internal employees and external teams or specialists.
Cooperation and clustering.
Unification of market players into new market formations such as a cluster, trade and purchasing unions, management companies to enter highly competitive markets and resource-intensive sales channels.
With the change in the economic factors of the global ecosystem, the transformation of the business environment will begin as an inevitable adaptation reaction of the local ecosystem.
All this will create preconditions for new business models and formats of business units. In the struggle to enter foreign markets, Ukrainian furniture companies will begin to unite into professional or mutually complementary clusters and business groups.
Also, an understanding of consolidated marketing, promotion, advertising and lead generation in the B2B market will come, not only within one company, but also within a cluster and industry association.
Segmentation, positioning and competition of furniture companies in the domestic market will develop into consolidation of efforts, differentiation and competitive advantage in foreign markets.
Taking over the experience of IT and E-commerce.
Building effective departments that generate content and targeted customer traffic is one of the key competitive advantages in the world of digital companies and assets.
It is necessary to adopt the progressive techniques of the leaders of highly competitive digital markets in order to succeed in the “dynamically changing battlefield”.
New techniques are quite well known in sectors of the consumer market that started digital transformation in 2012-2015, but the furniture business is archaic in nature and this slows it down very much in its development.
Mentally, at the level of owners and top management, most furniture companies are stuck between the “fat” 2000-2005 and relatively “promising” 2016-2018 and lives on the memories of past successful periods.
Unfortunately, a repetition of calm economic growth will no longer be and the main factor in the survival of the business ecosystem system will be precisely the “sustainable system” itself with its adaptive capabilities and “flexible team platforms” like cross-teams and agile teams, not only at the top management level, but in general in the company at all hierarchical levels.
It is necessary to learn not only to produce a good product, but also to create marketing content. Drive traffic, optimize the cost of attracting a lead and converting to a consumer.
It is important not only to “close the deal” and sell, but it is also very important to get positive feedback and a good professional rating in a connected social environment.
The possibility of growth in the Ukrainian market of the domestic furniture business.
Struggle for traffic and consumer attention.
All companies, without exception, will act in this direction.
The real advantage will be given to those furniture companies that have learned to make high-quality content and put the generation of targeted traffic and high-quality work with leads on the stream.
The furniture business needs to learn to work with brand engagement, loyalty and advocacy.
Creation of key communication with the consumer on the You Tube platform where a company or brand can build trust with a client and convince him of his competence.
Today it is easy to write, but it is extremely difficult to do it for reasonable money and with a small staff of digital marketing and content making specialists.
For small and medium-sized companies, it will be optimal to enter a partner marketplace and purchase services, services and competencies from specialized studios and specialists.
For ambitious medium-sized companies and large furniture businesses, the creation of full-fledged content departments, digital marketing, e-commerce within the business.
But even in this case, most furniture companies will not do without narrowly specialized outsourcing teams.
Reducing ineffective expositions, optimizing the assortment, creating our own model range and brands.
Revision of suppliers towards local Ukrainian companies.
Alignment of the terms of contractual relations between suppliers and retail chains in the direction of the world practice of “supply of products for 100% payment” or, in extreme cases, deferred payment for 45-90 days under bank guarantees.
This practice will significantly improve this distribution channel and provide an opportunity to earn not only retail chains, but also furniture manufacturers.
Perhaps the practice of “paying for furniture” will teach the management of retail chains to “sell furniture” and not just store and display it.
NEW Retail Format
Conceptual showroom combined with an architectural or design studio.
Working with VIP clients behind closed doors.
Use in augmented reality in retail spaces.
Capsule collections and micro-exhibitions.
The ability to conduct online master classes and workshops will require the creation of multimedia zones.
Possibility of growth of the furniture industry in Ukraine in foreign markets.
Developed countries Anglo-Saxon group: USA, Canada, Great Britain, Australia, New Zealand.
In connection with the decisions at the highest state level to diversify economic and geopolitical risks, a group of five leading world countries adopted a number of public and private documents that significantly restrict the import of products from China, including furniture and furniture components.
A number of distribution and retail companies from the United States have already faced an acute shortage of furniture products and, even with quarantine restrictions and the internal political situation, cannot meet the current relatively low demand.
A unique situation has developed for the Ukrainian furniture industry and this opens a “window of opportunity” limited in the time period of the end of 2020 and beginning of 2021 to enter and consolidate positions in the US and Canada markets.
Other furniture manufacturers such as Poland, Wetnam, Mexico, Brazil will also jump into this “window of opportunity”.
It is important not to miss the outgoing 2020 season and come up with offers for Western agents and buyers this year at the key world exhibition High Point Market 2020.
In this case, a large-scale substitution of imports that China produces in the very cheap, cheap and medium segment is possible. A large volume of serial furniture of almost all categories.
However, there are a number of issues that need to be addressed, the specifics of national markets, consumer preferences and furniture standards for these countries, upholstery fabrics, decorative items and finishes.
It should be understood that the “entry ticket” to this highly competitive and capacious market is not free.
Funding for participation in exhibitions for at least two, and possibly three years will be required, quite expensive work of local consultants and trade experts to attract buyers and trade partners.
Preparing collections and stocks for export markets will also require concentration of efforts and finances, and this is tens and hundreds of thousands of dollars. It is necessary to adequately measure the scale and capabilities of companies and enter gradually, injecting 3-5 products per 1 working cycle.
These markets have many features and differences from the usual scheme in Ukraine or the EU countries.
Segments that Ukrainian furniture companies can enter in these markets; B2B and international E-commerce, DIY and in some cases B2G.
Developed EC countries and northern Europe: Germany, France, Italy, Spain, Austria, Belgium, Holland, Denmark, Poland, Slovenia, Slovakia, Czech Republic, Finland, Sweden, Norway, Estonia, Lithuania, Latvia
European countries also did not stand aside from the trade wars with China.
A lot of companies and consumers suffered during the lockdown and want to insure against a whole range of risks.
Particular attention is paid to the selection of new suppliers that are regionally close to the European sales market.
Many system players began to test the opportunity to place their orders at Ukrainian production facilities. European countries need furniture in the segment of cheap, medium and medium plus.
Optimal logistics and the availability of a sales infrastructure enable Ukrainian furniture companies to enter this market relatively quickly.
Find trading partners in B2B and international E-commerce, DIY sectors.
In the furniture market of the EU countries there will be fierce competition with local European manufacturers in terms of model range, price, quality and service.
“Gentleman’s business set” is definitely not the strongest side of Ukrainian companies, especially in the direction of “replicas and copies” of European factories with which it is categorically contraindicated to enter the civilized market.
In our opinion, it is necessary to enter the growing format of the international E-commerce Amazon, as it is represented in the six largest European countries with delivery coverage in all EU countries.
Contractual supplies of furniture to specialized retail chains are also interesting, but this segment will fully start operating in autumn-winter 2020.
Opportunities are open on the European market for Ukrainian designer furniture and, first of all, it is necessary to look for professional distributors of art furniture with strong competencies in E-commerce and the creation of conceptual showrooms.
Only in this case, Ukrainian object designers can expect decent sales of their author’s products.
New and newest industrial countries 1-4 waves: China and satellites, South Korea, India, Malaysia, Thailand, Philippines, Chile, Brazil, Argentina, South Africa.
Private and public contracts.
Access to local and regional architectural design studios.
Project sales of expensive designer furniture and ready-made interior solutions in the B2B and B2C markets.
Competition with Italian and Spanish companies.
Delivery of a limited model range to local and international E-commerce.
Contract deliveries of serial furniture to government and commercial organizations.
These countries are interesting for manufacturers of inexpensive serial residential furniture and kitchens.
The most important thing to enter these markets is to find a reliable business partner, since local risks are high enough for the development of their own sales and distribution through a representative office.
Middle East and OAU countries
This market occupies a special position, there is a lot of money and very high requirements for the product and service.
There are many private and public contracts for furniture of a high price level.
The market demands the creation of complex interiors, complete with turnkey furniture solutions from a single source.
A complex value chain for the end customer and user is involved.
Seriously prepared companies need to enter this market to play the long game according to the complex rules of someone else’s territory.
There are not many such companies in Ukraine, no more than 10 of them can actually work in such a complex and demanding market, a maximum of three companies.
Promising industrial countries: Nigeria, Egypt, Pakistan, Bangladesh, Vietnam.
State and donor contracts for these countries are of interest to Ukrainian manufacturers of serial furniture.
There are many requests for furniture for kindergartens, schools, offices and living spaces such as campus or small family dormitories.
In the markets of these countries, the simplest and most “conservative” product may be in demand, this provides a good opportunity for the sale of consignments of goods from previous seasons and residues unsold in retail chains. But even a “discount product” will require proper presentation and content.
To work in such markets, it is necessary to find reliable sales agents and intermediaries, since there are very large commercial risks in payment and acceptance of commercial consignments.
TOTAL: New challenges create a demand for a fundamentally new product range on the Ukrainian and World markets.
The demand for personal and collective security is creating new product categories.
The consumer began to spend more time at home and, as a result, the demand for furniture made from environmentally friendly materials increased, especially in upholstered furniture and sleeping groups.
Many requests to change the hallway and near the entrance area with separate sorting of conditionally clean clothes and conditionally street clothes.
There is also a request for disinfection and treatment of worn clothes and a person, a pet, who came from the street.
Separately, there is the issue of various sanitization of packaged products and various household items and electronic gadgets.
It will undergo changes, and the kitchen will become larger after all, and the family gathers there more often and now it is a public area for communications and video conferences. This means that it is necessary to pay attention to this in future products.
It should be noted that this trend is long-term and requires the creation of new generation product lines at the intersection of furniture production technologies, instrument making, microbiology and virology, and software.
New generation products are already occupying their niches in public places and private interiors, the next step in the mass market segment.
Fewer unnecessary city movements are reformatting Retail.
Transport restrictions in Ukraine and the world have significantly changed the traffic of consumers to shopping centers; it has significantly decreased.
Accordingly, the traffic from shops within walking distance from home has grown, and the share of purchases of food, clothing and furniture in E-commerce has also grown significantly.
The new consumer behavior pattern will significantly affect retail furniture Retail, which will lead to the reduction and closure of outdated archaic format outlets and the opening of other outlets of a new format.
An important topic for the near future is unmanned delivery, and already at this early stage, it is necessary to adapt products to realize such opportunities.
Psychological and emotional resilience requires redefining jobs.
Work in the office and even at home will require a new type of workplace.
The combination of many functions during work dictates both a larger format of the workplace and its “capsule” closure from external stimuli.
The format of continuous communication and work on 2-3 electronic devices is a single moment of this time requirement.
The possibility of focused personal work and teamwork in a cross-team without moving to other spaces is the main contradiction in creating a modern workplace.
For the “Home Office” workplace, “isolation” from the family and everyday life will be important.
For a full-fledged workplace “Hybrid Office” adaptability to the user’s anthropometry and the ability to integrate modern computer systems will be important.
A significant factor in emotional comfort will be zoning with acoustic partitions and creating the boundaries of personal space with additional furniture for psychological recovery.
Comfort and the integration of furniture into digital systems are new challenges of hypercommunication.
Continuing the theme of workplaces at home and in the office, I would like to note the topic of integration with digital information platforms and workplace gadgets.
At its core, a new product category “Smart Desk” is emerging in which an acoustics system, a digital hub, a charging station and much more are built in so that the system can connect with the flagship gadgets of the world leaders in the digital industry.
Such solutions will make it possible to start a dialogue in a video chat with a remote team or a consumer, client, partner almost in one touch.
In such systems, the main thing will be multitasking and multi-format, support and connection of various digital devices in the functional area of the operator’s workplace.
The task is at the intersection of furniture, instrumentation, software.
Today there are design concepts, working prototypes and pre-production models of such “Smart Desk”.
Together with our Ukrainian partner, we are developing such a product for the export and domestic market.
Extension of the life cycle of furniture and the possibility of “recycling”.
In traditional home furnishings, there will be trends towards longer effective life. This is primarily due to consumer dissatisfaction with throwing away favorite items due to their short life cycle.
Since 2000, a short product lifecycle has been dictated by irresponsible TNCs, manufacturers and global retailers in pursuit of cheap prices and gross sales.
For the sake of this flawed business model, huge forests in Ukraine, Africa, South America were destroyed.
Based on a lot of valuable resource in the form of wood, fabrics and other natural materials, the product was designed “so that in a year they would be replaced with a new one”.
This gave rise to the growing mass dissatisfaction of consumers, who felt the ambiguity and dead end of such a situation, instead of useful and necessary items, garbage and waste was generated that polluted the environment.
Since 2010, all the market includes the concept of “socially responsible consumption and production”, as well as “circular economy”
So, in the perspective of the cost of ownership of an item, a better and more durable product clearly wins.
Such a product generates less garbage, technological costs are practically comparable to a “disposable product” and the consumption of replenished and non-replenished natural resources is significantly lower.
A whole generation of socially responsible consumers is growing, who have formed a demand for a product that is respectful of the environment and carries value, and not the problems of recycling and disposal for future generations.
The consumer’s question becomes how long the product will live and how much it can be recycled.
Fast furniture made from recyclable and biodegradable materials in 3-D printing technology.
To close the demands of the mass market, it is already relevant to consider the possibilities of serial 3-D printing of ecological biodegradable masses.
Such a product can have a guaranteed service life of 3 or 5 years after which it can be disposed of without harm to the environment.
It can be collapsible and packed in flat boxes.
It will be possible to produce such products using ready-made models and digital catalogs on the territory of large DIY shopping centers.
Such a solution will reduce the inventory of goods and materials in warehouses, optimize logistics, and free up working capital.
This is the way not only for the category of budget furniture of the AA group – daily mass demand at a special price, but also for other product groups.
The research and conclusions made by our design studio SV & Partners are not final, and we continue to work on new articles.
Changes in the world and society are proceeding with great speed, and we could not describe many events in this small material.
We offer open communication and discussion of the proposed topics both in the comments under this article and in private messages by email.
Anyone interested in the program of exporting furniture and interior items to the USA, please contact Lyubov Suknenko, the official representative of HPMKT, and Valeriy Sukhitsky, a partner of EF cluster.
Object design judge SV & Partners together with our partner
https://uidfcluster.com/ we are preparing a systematic program for entering the US furniture market in 2020-2021 for Product Designers and Furniture Business in Ukraine.
CDO of full-cycle product design studio “SV & Partners”.
The author of the text is Valery Sukhitsky.
May the creative force be with you!