Furniture firms find comfort on domestic market

Newsroom 18/07/2011 | 12:50

Although the prospect of growth is back on the table in other areas of the economy, furniture firms are just hoping to reach results similar to last year. This market is highly dependent on the construction field and domestic purchasing power, and since neither are showing signs of revival, growth seems highly unlikely, although some increase in demand is expected internally, experts tell BR.

Corina Dumitrescu

The furniture market has been declining for the last three years, says Aurica Sereny, president of the Romanian Furniture Manufacturers Association (Asociatia Producatorilor de Mobila din Romania, or APMR). “The value of the domestic furniture market has been over EUR 950 million for the last three years. In 2008, it started at EUR 1331.4 million, rose to EUR 1134.1 million in 2009 and EUR 962.2 million in 2010,” says Sereny, adding that the crisis was felt the most in “the absorption of local, as well as imported products.”
The APMR president has some reasons for optimism however. “In 2011, we are hoping to see a revival in domestic demand for products. The proper functioning of things depends on purchasing power, since residential construction does not show any signs of improvement. People cannot replace their furniture, although many would like to, since living standards are stagnating.” A return to normality in the functioning of the economy is expected, continues Sereny, who foresees a modest rise in the furnishing of kindergartens, schools, offices, commercial spaces, pensions medical and beauty cabinets.
From an HR perspective, the picture is gloomy, continues the president. “The number of employees active in the furniture industry fell significantly following the start of the financial crisis, over 2008-2010. In 2009, the reduction from 2008 was drastic , at 21.3 percent, while over 2009-2010 it declined 9 percent, so that by the end of 2010 the industry employed 48,500, the lowest figure in the last 20 years. In the first two months of 2011, the situation improved, with the number of employees reaching 49,600 people.”
All in all, Sereny expects the crisis to end when three factors improve: capital, workforce and productivity. “In order to reach a growth rhythm close to the potential, these conditions must be met through a flexible and stimulating fiscal system to bring investments and encourage local capital. Romania needs a coherent strategy to stimulate labor market participation,” she argues.

Office furniture manufacturer puts discounts on the desk
Corporate Office Solutions (COS) has been selling office furniture in Romania for 14 years. Christophe Weller, managing partner of COS, tells Business Review that while the rising cost of raw materials has affected business, he does not really regard this as an issue. “Every manufacturer has had to increase their prices due to the increase in the cost of raw materials, so nobody really lost out in terms of competitiveness compared to each other. The consequence was felt more in our profit margins. In order to alleviate the impact of the price increase on our customers, we absorbed some of it ourselves, bringing our margins down. Also, we convinced our manufacturers to try not to pass on the whole price rise themselves.”
Discounts have helped, Weller adds. “Manufacturers have been ready to offer deeper discounts than before in order to make the actual increase lower than the announced amount. This is mostly happening on the furniture and floor covering segments. Our partners have been very supportive and understanding so we don’t lose a project on price. For the fit-out part – partitions – prices have remained the same, if not lower for some products, since the crisis has persuaded manufacturers and contractors to cut their prices in order to survive.”
Concerning the financial aspects of the business, the COS official says his firm is in line with the market, as the company expects similar results to last year. “In 2010, we registered a turnover of EUR 12 million. This year we expect to reach the same figure, and although it will not be easy because the market is smaller and competition is fiercer than ever, the EUR 12 million target is possible, thanks to our turnover, reflecting carpet, partitions and M&E installations.”
The company’s main investment remains the showroom, continues Weller. “We are continuously investing in our showroom, by introducing the latest products launched by our furniture, carpet and partitions manufacturers.” Another strategy for development is more niche-oriented, addressing the peripheral office markets. “We have developed our range in terms of furniture, floor and wall covering solutions as well as fit-out in order to address the needs of the health, hospitality and education sectors.”
Neither cutting personnel nor relocation were contemplated in the pursuit of savings, he adds. “From the beginning we did not consider reducing staff numbers as a method of cutting costs. Same for giving up our 1,000-sqm showroom: we were keen to stay where we are. Instead, we looked at other costs which could be decreased without affecting our business performance. For instance, we renegotiated the leasing contract for our office as well as the warehouse.”
The crisis has also brought about major changes in consumer behavior, as was to be expected, adds the managing partner. “Customers have always been very attentive to the money spent on designing their new offices, but this is even more the case now. They are definitely aware that each supplier/contractor will be eager to get the deal so negotiations are fiercer than ever. Another trend is that some furniture items are now considered as simple commodities. A desk has to be strong, durable, practical and functional. Aesthetics or high-tech aspects are not so important anymore,” he adds.
The office furniture manufacturer’s representative does not foresee a market comeback until 2013 at the earliest. “The furniture market will be severely affected this year and next year. Some moves will happen but without much purchasing of furniture. It will hit the bottom this year before starting again in the second half of 2012 if buildings that are now being promoted actually start being built. Real estate agents are getting very busy these days, trying to get pre-leases agreements for major new spaces. If they succeed, it will mean, for us, business in 2013.”

Residential furniture manufacturers at home with production optimization and new openings
Furniture manufacturer Lemet has been on the Romanian market since 1991. Its products are distributed in Lem’s stores. The general level of the Lemet business in 2010 was RON 143 million, a 6.5 percent increase against 2009. The company has a network of 103 stores and has so far invested RON 80 million in its factory. Each store requires an estimated RON 300,000.
Adrian Rizea, commercial director at Lemet and Lem’s, does not consider the rising cost of raw materials an issue. “This increase has not affected our relationship with the final customer because retail prices have not been significantly affected.” He is however quite skeptical regarding the revival of the market. “In 2011, the market will remain at the same value, at best. By mid-year, the furniture market will have decreased 20 percent, which may be recovered by the end of the year. In terms of value, 2011 will not be a good year, and the level will stay the same. We do not believe, however, that shoppers will be affected by this.”
In spite of this gloomy projection, Rizea expects a 23 percent increase in turnover in 2011, to RON 176 million. The company’s most significant investment, the commercial director continues, is its human capital. The development strategy is focused on new products and the opening of new stores, as well as the optimization of production capacity. Since the start of the year, 17 shops have been opened around the country and in the next two months, seven new Lem’s outlets will begin trading in Brasov, Sfantul Gheorghe, Reghin, Tiplita, Slatina, Cernvoda, Constanta and Suceava.
Elsewhere on the scene, Casa Rusu stores stock the output of furniture manufacturer Rus Savitar, which has been operating on the Romanian market since 1994. Marius Raia, general manager at Casa Rusu, notes that raw materials prices are not just a local issue, but a global one. A cost reduction obtained from suppliers through contract renegotiation is one way the company has responded. Production optimization has also been a priority, along with the introduction of new products, continues Raia.
The group registered a turnover of EUR 22 million last year and expects a 10 percent increase “due to investment in the retail chain, as well as in the production line”, says the GM. He tells BR that EUR 5 million will be invested in upping production capacity for upholstered furniture (couches, for example), as this sector was inaugurated successfully in the autumn of 2010, after a lower investment of EUR 1.5 million. “Through these investments we will create 400 new jobs and produce 20,000 units per month.” The company has so far opened seven stores nationwide and invested EUR 4.3 million in retail.
For its development, the firm is preparing a franchise system, which has already piqued the interest of collaborators and offers have been received, says Raia. It is also focusing on marketing its products on the internet. This however requires an improvement in logistics and a medium-term approach, Raia adds. The company’s commercial director believes that Casa Rusu’s main competitive advantage is that it also makes its furniture, which meant that when VAT was increased the company bore the difference for a while.
Raia sees a positive aspect to the crisis, an evolution in buyer behavior. “The consumer is better informed and analyzes the products in greater depth than before.” He adds that market recovery is contingent on many aspects, such as the government’s tax policy, the stability of the local currency and investment in the creation of new jobs.
Meanwhile, Austrian furniture company Kika has invested EUR 31 million in its first and currently only Bucharest store. Kika’s local CEO, Lars Lund, highlights another raw material (besides wood) whose price rises have affected the furniture market. “There have been costs increases in cotton in particular, and for some products we have had to raise the price. But mostly we kept the prices as they were and did not pass the increase onto the consumer.”
Lund also mentions a boost in sales for the company and has hopeful expectations for this year, although he did not disclose the company’s turnover. “We had a small increase in sales last year and we are seeing a much larger increase this year. The biggest rises last year came from our ‘young style’ department, which saw a 32 percent hike, and lamps, up 26 percent.” The company’s further investments will focus on new openings. “This year and next we will make an investment in new stores. We will open one in Constanta next summer and if the purchases of new land go well we will open another in Bucharest.”
Lund is equally optimistic in his market recovery expectations, an event he sees happening in the next twelve months.
Local furniture manufacturer and trader Mobexpert was founded 17 years ago by Dan Sucu, owner and president of the group. The firm currently has 32 stores regionally, of which ten are hyperstores, which required an investment of EUR 80 million. Last year’s turnover was EUR 115 million and Sucu expects similar results for this year, although the market, he says, continues to decrease.
Mobexpert also focuses on research and development, adds Sucu. “We annually invest a significant sum in the research and development of new products and in technology. It is difficult to calculate the total value, but all I can say is that the investment in the industrial platform in Targu Mures and in the Bucharest centers totals EUR 30 million.”
The company’s main focus has been upping the pace of collection renewal. “At this moment, a third of the products in the store are permanently new,” says Sucu. He believes the company’s main advantage lies in the dimension of the business. The owner adds, “Over two thirds of the products in our stores are made in Romania and the rest are imported from trusted international manufacturers, so that we maintain strict control of store prices.”

Constance is the key for luxury furniture firm
Italian luxury furniture manufacturer Minuzzo has a different perspective of the local market, due to the niche on which it operates. Claudio Minuzzo, one of the two associates of the company, gives the example of raw materials. “It is well known that on certain market segments, raw materials are not affected by crisis, therefore these will not lose their value. This is also the case with the raw materials used by our company, which go to make high quality products, starting from the wood essences used for accessories. We were able to renegotiate our contracts with these suppliers, suppliers with whom we have worked for many years and will keep on collaborating while they provide us with high class products.”
Minuzzo is more positive about last year than many. “We can consider 2010 a good year, if we take into account that the crisis affected all fields of activity, including the business environment. Looking at the first trimester of this year, we estimate a 20 percent increase in our turnover by the end of the year, as we have just inaugurated a new showroom in Bucharest due to the demand and interest expressed in this area of the country for high class art furniture.”
In terms of investment and development directions, Minuzzo’s early investment went into high performance technology and training costs for employees. There followed periods when the money was spent on business development, continues Minuzzo. “This is how the Sibiu business started. The company also owns its own factory there, for export development.” The last five years, he adds, have seen the firm work towards an increase in the commercial segment, which meant the opening of showrooms, such as Sibiu and Bucharest. Design and unique products have also been of key importance to the company.
Minuzzo says that the manufacturer has not been greatly harmed by the financial turmoil. “Since Minuzzo is oriented toward personalized furniture, we cannot say we have felt the effects of the crisis. With the advent of the recession our clients became more selective and gave preference to products able to guarantee long term quality. More than that, in this period we have launched a new showroom and have hired new staff members.”
This positive stance extends to the associate’s prediction for the market rebound. “Yes, we have high hopes that the luxury furniture market will soon recover its status and glamour, as our business figures largely suggest this is the case. In addition, the continuous refinement of Romanian clients’ deco design tastes is also a positive sign that we can expect a business increase and stabilization.”

corina.dumitrescu@business-review.ro

 

“Manufacturers have been ready to offer deeper discounts than before in order to make the actual increase lower than the announced amount,” Christophe Weller, managing partner of COS

“Due to the crisis, the consumer is better informed and analyzes the products in greater depth than before,” Marius Raia, general manager at Casa Rusu

Key figures for the furniture market*
EUR 1331.4 million – 2008 market value
EUR 1134.1 million – 2009 market value
EUR 962,2 million – 2010 market value
EUR 822.5 million – sales of internally manufactured products in 2008
EUR 809.9 million – sales of internally manufactured products in 2009
EUR 641,1 million – sales of internally manufactured products in 2010
EUR 508.9 million – value of furniture imports in 2008
EUR 324.2 million – value of furniture imports in 2009
EUR 321.1 million – value of furniture imports in 2010
31.7 percent – increase in exports of wooden products
7.2 percent – increase in imports of wooden products

•according to the Romanian Furniture Manufacturers Association

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