Live And Let Live

Posted in International on Friday, 12 September 2014. Print

Many manufacturers seem indifferent about what is going on in the market and appear only to care about their own interests.

Live And Let Live

THE OTHER DAY I went to Chengdu for a business trip. When I talked to one of my old friends who makes a living retailing furniture, I found that traditional retailers/dealers are in deep distress.

They are squeezed both by upstream and downstream. This in addition to severe oversupply problem. This retailer in particular has been in deficit for two successive years. The upstream pressure refers to manufactures while the downstream refers to furniture malls/ landlords. We have talked too much about the latter so I will skip it and focus on the former.

Many manufacturers seem indifferent about what is going on in the market and appear only to care about their own interests:

They demand that the display area must be large; They keep on developing new products while reluctant to abandon old models. As a result the display area will need to keep on enlarging to accommodate more designs, which in turn means more rent. In the past when demand exceeds supply, it is no big deal to dealers. However, when business is tough, this will drive dealers to their demise.

I turn to an old friend for tips and here are some suggestions: The whole display area should be limited to less than 200 square meters and those non-popular and non-moving products should be taken off (per season).

All product series should follow the “20:80” theory. Those 20% of goods that are sellable be on display while the remaining 80% be marketed only via catalogue and video.

Manufacturers should be serious about the design of their products. Poor designs will not only incur manufacturers losses but also hurt their dealers. Changing designs frequently only mean there are flaws with the design and problem with the manufacturer.

At my Shandong factory which is in collaboration with the British, there had only been few minor updates to our product designs over the years. They remain in our main production categories. Why is this so?

The reason is because many designs in the market today are copies of European and American designs or the so-called international style which is not our culture or have no cultural basis. This explains why we are not able to handle the design well and why the designs cannot sustain in the market for the long term. Manufacturers will suffer if they take short cuts and do by trial and error. In the end, dealers will suffer too.

Some simple examples to substantiate my claim:
Did Ashley’s designs change? No!
Did Ikea’s designs change? No!

This is because their designs are in line with their own culture and this make it possible for the designs to remain the same for a long time. Take a look at our own market, we can accept that others designs remain unchanged, however when it comes to our “own” designs, we change yearly. This is a demonstration of weak culture.

Going back to the subject of discussion, the sandwiched dealers are dragged around by manufacturers and led through an arduous but fruitless exercise. At the end of the day, they are tired out and make no profits.

Now we are confronted with a sluggish market.
Do you know why?
There are too many furniture malls. The total sales area for furniture in China has already surpassed 100 million square meters. The amount divided by the total sales volume, each square meter makes only 4000 to 6000 RMB, which can barely cover the rent.

A rough estimate, those factory-owned direct retail stores of renowned companies earn between 400,000 to 800,000 RMB per store. Very few of them do exceed 1 million RMB. With display area that large, they can hardly make profits. Manufacturers must know that well, so they should not force dealers to rent those large spaces that will bring losses.

Mall owners and manufacturers gang up against retail dealers (perhaps manufacturers are held ransom by mall owners) to open stores. Wherever the mall operators go, they need to follow regardless and that is very immoral. However few dare to voice out because those two parties have deep pockets and no one wants to offend them.

As a result, dealers are suffering and shops close one by one. According to Zhao Zhizhong’s 2011 surveys on the well developed east china area, visitor traffic volume at larger stores such as Macalline, Moonstar’s and DERLLOOK is 5 to 8 people per day. It is approximately 11 to 18 people per day during the weekends. This is a horrible sight!

Under this kind of situation, dealers were craving to ask for advice from my friend Pan Shouzheng who accompanied me on the trip.

“How can we get connected with ecommerce?” most of them asked


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