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Furniture brands seek market share

Released at: 07:56, 10/03/2019

Furniture brands seek market share

Photo: UMA

Local and foreign furniture brands are expected to expand as IKEA joins the market and FTAs make an impact.

by Nghi Do

With Swedish furniture giant IKEA’s initial steps in investing more than $500 million to build a retail center network and warehouse in Hanoi, Vietnam will be the next Southeast Asian country the brand penetrates into during its global expansion plans. “Expansion to Vietnam is part of the overall plan to make IKEA more accessible to people around the world,” said a representative from Inter IKEA SystemsB.V., the worldwide IKEA franchisor. “We are still in the early stages in the process and are constantly investigating expansion opportunities in interesting markets, including Vietnam.”

Driver of success

Vietnam is considered one of the region’s most attractive markets for foreign investors, with a steadily increasing GDP and booming FDI, according to the 2018 Vietnam’s Furniture & Home Décor report released by the EU-Vietnam Business Network (EVBN). As Vietnam’s economy continues to improve and grow, the home décor and furniture industry can expect to grow along with it. Rising household incomes lead to improving living standards as local consumers become more able and willing to spend on high-quality goods. Recognizing the potential of the furniture market, there have been new foreign-invested brands arriving to meet demand, such as UMA and JYSK.

Starting 12 years ago with a small shop in Hanoi, UMA has now become the most established furniture retailer in the country, with products delivered to a quarter of a million customers in all cities and provinces every year. “It has been an interesting journey so far, seeing how interest in home interiors has developed quickly and how UMA has catered to this demand mainly with products designed and made in Vietnam,” Mr. Jan-Erik Svensson, Range Manager at UMA, told VET.

Consumers in the past, he went on, were only looking for functional items but are now expecting that products match their personal style and way of life while being of better quality. “We have noticed this trend in our customer base over the last few years,” he said. “We have been following a strong strategic plan over the years, with one aim to make our position even more defined during 2019.” 

There is a growing trend among the younger generation to move out of their parents’ home, the report noted, and they place greater emphasis on new and stylish furniture at affordable prices. Targeting young middle-class families, Danish brand JYSK has been pleased to win the trust of Vietnamese consumers. Arriving in the country just four years ago, it has built a retail chain of 15 stores nationwide, of which eight are in Hanoi, six in Ho Chi Minh City, and one in Da Nang.

The accelerating Westernization of the younger generation is the key driver of success for foreign furniture companies in Vietnam, according to the EVBN. JYSK and BoConcept have successfully delivered Nordic furniture and home décor to local customers, while UMA has combined Nordic design and quality with local price and shopping experience. The latter imitating the IKEA business model also fits in with the desires of young city-dwellers.

Pressure to come

Vietnam’s furniture market is divided into two main segments: regular and high-end products. Regular products are made by carpentry shops and local small enterprises, with most locally-produced products for domestic consumption being made from average or low-value timber, such as particle board and MDF. High-end products are usually imported from well-known enterprises and is the segment foreign and domestic brands like Nha Xinh and Pho Xinh focus on. As products made in Europe are in high demand for their top-notch design and quality, some local businesses have switched their targeted segment from the low to the middle-income group.

A sister company of the AA Decor Corporation, AKA Furniture Group, one of a few domestic manufacturers, has followed the trends and requirements of the market closely. Established only seven years ago, the local manufacturer now has 30 showrooms with several furniture brands, including Nha Xinh (with ten showrooms in Ho Chi Minh City and Hanoi), and other top international brands. 

As GDP per capita and disposable household income are on the rise, in the future the preference towards Western-style products will put pressure on local manufacturers to come up with innovative designs to compete. “We continually adjust our design and pricing strategies to be more competitive,” Mr. Ly Qui Trung, CEO of the AKA Furniture Group, told VET. “Service quality is also our ultimate goal, since we believe that Vietnamese customers not only buy furniture but also services. We don’t buy and sell furniture - we design, produce, promote, and sell furniture, and want to create a lifestyle for Vietnamese people.”

The Truong Thanh Furniture Corporation, a leading domestic manufacturer of wooden furniture targeting exports to the US and the EU, plans to expand its domestic sales by opening 20 retail outlets around the country and targeting the high-end furniture segment by cooperating with local retail giant Vingroup. 

Competition in the market is relatively tame, as each business focuses on special customers and segments, according to Mr. Huynh Van Hanh, Deputy Chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA). A representative from the EVBN, however, said that for retailers in Vietnam, it’s not about the battle for location but the online marketing strategy and supply chain management. 

The US’s Ashley HomeStore chain, the company Mr. Hanh believes is fully capable of operating a quality distribution network, is planning to open new outlets in Nha Trang and Can Tho cities in the future. Last year it opened a 400,000 square foot consolidation warehouse in Ho Chi Minh City to provide a faster response time on customer orders. One chain he believes will influence the market is IKEA. “Its rich experience will have an impact on local players in the domestic market,” he said. “Competition will increase and will make manufacturers and distributors review their operations.”

IKEA’s arrival will result in certain changes, with the AKA Furniture Group seeing its appearance as an opportunity rather than a threat. IKEA will create a new market and recruit a lot of new customers who are budget-minded and are not overly familiar with furniture design. The market is huge and Nha Xinh and other international brands belonging to AKA want to be market leaders with good-quality designs and branding. “Our local brand, Nha Xinh, will compete with IKEA in quality, services and branding, but not pricing,” Mr. Trung said.

Of a similar mind, Mr. Svensson said that the appearance of IKEA is a sign of a developing market and will be a wake-up call for most actors in the home furniture industry. “We believe the best strategy is to differentiate from IKEA, both in variety and in service,” he went on. “We are eager for their entry because the market size will grow overnight. Looking at other markets where IKEA operates, there is always space created for more retailers to operate.”

Structure of vietnam’s wood-working industry (%)

Source: Developing Country Sourcing, 2018

Household expenditure on household goods & services, 2015-2020 ($ billion)

Source: Economist Intelligence Unit, 2018

Adaptive to integration

One of the most important competitive advantages making Vietnam a top choice for the wooden furniture industry is the favorable environment for foreign investment, according to the EVBN. While wages in China are on the rise, Vietnam still offers a large pool of workers at a lower wage rate. Many new free trade agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam FTA (EVFTA) make it an attractive production location, together with other benefits such as low operating costs and stable political conditions. The furniture industry is forecast to continue to expand by an average of 9.6 per cent each year from 2015-2020, given that domestic property demand will also increase in the next four years along with rising trade with partners like ASEAN and the EU. 

From a business perspective, AKA sees that FTAs with other countries will boost the industry development even further. There will be more furniture exported from Vietnam and more international brands coming to the country. Competition will be a lot greater, and only those that understand the market and have a longer-term vision and investment will survive.

Believing in itself no matter how fierce the competition may be, UMA believes a Vietnamese furniture brand is in the best position to benefit. Consumers have a broader choice nowadays when it comes to buying the perfect piece for their home and UMA wants to be the first name that springs to mind.

With stable annual revenue and profit growth, AKA’s ambition is to open showrooms in all major cities and provinces in Vietnam within the next five years. “I want to see a big jump both in quantity and quality,” Mr. Trung said. “We will open showrooms overseas as well, especially in countries that have similar tastes and demand to Vietnam. We also want to be the first and most successful Vietnamese furniture brand exported to the world.”

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