Design and furniture market facing the multi-channel approach

9th April 2019  

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The American Interior Designer Charlotte Moss thinks that our goods, trinkets and everything we have in our homes says a lot about who we are. They are as honest as a personal diary could be.

Maybe it is true, or maybe not. Nevertheless, consumers love design and furniture and this passion seems to be never-ending: the global design and furniture market has been valued at 735Bn euro in 2018 and its value will continue to grow by 1.5% per year towards 2022, ending at 775Bn.

Online sales, which will have a higher growth rate than the general market, will push the sector, testifying one of the latest trend: physical store sales cannibalization. The online channel, which represents 26% of the total market of 190Bn in 2018, should grow by 11.5% per year towards 2022 reaching 38% of the total market (figure 1).

Figure 1: Global Furniture & Design Market (Bn €)

Source: Global Furniture & Design Market Research realized by U-Start for Colombini Group

Geographically speaking, the two most important online markets are USA (constituting 31% or 59Bn euro) and Europe (constituting 13% or 25Bn). The Indian market, despite being rather small (1% or 1.3Bn), is really interesting as well due to its high growth rates.

Looking at the online market penetration rates, they will increase in all the mentioned areas in the upcoming four years. The American penetration rate should grow from 19.7% in 2018 to 23.8% in 2023, the European from 11.5% to 15.5% and the Indian from 5.2% to 8.3%. The situation changes when looking at consumers, as in 2018 online clients were 84M in Europe, more than 65M in USA and less than 108M in India. Compared to the global population, these numbers mean that the penetration rate is 20% in Europe, 25% in USA and 8-10% in India.

In order to understand the differences between the three areas, you can compare average revenue per user (ARPU). The number measures the average revenues per single client over time. In Europe, for example, there are more users but the average expenditure is 302 euro (only a third of the American one – that arrives at 912 euro). Indian average expenditure, due to the country economical background, arrives to 20 euro (and even less).

Europe is a step back but trying to grow up

The European market has remained stable from 2016 to 2018, growing by 1-2%. In the same time, online sales increased by 20% per year. This trend will probably continue: European online sales should increase by 10% per year arriving at 40Bn in 2023. This will happen thanks to reduced logistics costs, better online shopping experiences (also for medium and large size products), different online purchasing attitudes by new generations (Millennials and Generation Z), and the progressive lifestyles “nomadizing”. Augmented reality, together with all the technological solutions able to facilitate the user experience, will also increase the phenomenon. This will make both the amount and the entity of online sales grow, while the entity is already increasing (even if the ARPU is still modest).

The average European consumer who prefers online purchasing is under 50 (usually between 25 and 34 years old), while women with a medium-high salary represent 56% of online customers. According to one of the CSIL (Centre for Industrial Studies) surveys, the online channel is used not only to buy furniture directly, but also to choose products before going in the physical store (90% of the interviewed people said it). That means that retailers have to be present online, so they can improve their visibility and brand awareness.

USA primacy challenged by China

At the end of 2018, USA was the biggest market in nominal terms, with great prospects for growth towards 2023 (11% estimated per year). However, in the upcoming years, USA will be surpassed by China, which will become a global leader by 2020. The best online penetration rate is currently also seen in USA, even if it suffers from high delivery costs: traditional players take advantage from short and medium distance deliveries but just 60% of the first 100 furniture sellers have developed a proprietary e-commerce platform. Digital native competitors have bridged the gap, becoming reference players even if they do not offer the best products (figure 2).

Figure 2: Main USA players – online purchases in 2017 (Bn €)

Source: Global Furniture & Design Market Research realized by U-Start for Colombini Group

ARPU rate is still high: more than three times higher than the European, even though the penetration rate based on population is just slightly higher, taking into account different purchasing power and better familiarity with online sales than European customers have. ARPU rate will also most likely increase due to the sales growth of large size furniture (from 918 dollars in 2018 to 1200 dollars in 2023). In USA, most of the customers who buy online are younger than 44 years old (70%), woman (55%) and with a medium-high salary (73%).

It is also interesting to consider business models: companies such as Laurel & Wolf, Hutch, Modsy and Homepolish are pioneers in models hybridisation, taking inspiration from crowdsourcing, software and marketplace. These kinds of companies are indeed acting as connecting hubs between people who would like to furnish their houses, interior designers and suppliers. They also use artificial intelligence instruments other than machine learning and augmented reality technologies.

India: keep an eye on the outsider

In 2016, even though the internet and smartphone penetration rate was high, the online market was only 1-1.5% of the whole design and furniture market, due to infrastructure problems, low buying power and high logistics costs.  However, the market improved a lot with a value of 1.3Bn in 2018. In the future, the growth should be around 18% a year taking the market value up to 2.7Bn euro in 2023.

Due to the low buying power in the country, the ARPU rate is modest (just 18 euro in 2018 – with a 5% annual growth rate until 2023). In 2018 online customers are standing around 71M: the amount is not so far from European and American data, but they both have smaller populations (the European population is half of the Indian, while the American population is just a quarter). Estimated growth rate is indeed more positive than the European and American (+11% in the next five years).  The average Indian online customer is young: more than 97% of the users are younger than 45 years old, while 53% are women and more than three out of four has a medium-high salary.

The Indian market expansion will be supported, not just by a better online penetration rate, but also by the organic growth of the design and furniture market. The fast urbanization will revitalize the market, also thanks to the high demand for modular and compact cabinetries that should have a decisive impact on the market growth. It is also important to consider that the government has introduced some economic reforms that should have a positive impact in the future.

Currently, households are pushing the market representing 65% of the total demand, while office furniture represents 20%. In September 2018, the e-commerce leader Flipkart launched a new proprietary brand called Perfect Homes, saying it will become one of the most important levers for growth in the upcoming five years. The biggest challenge for big furniture and Indian design brands is to replace the national habit to buy furniture from local artisans. However, the recent creation of a new 4G web-based network and the arrival of online platforms such as Pepperfry and Urban Ladder are contributing to changing this habit.

An online future between customer experience and new trends

Even if the market is definitely growing, some obstacles slow down its development. Logistics and Operations for large products are still not good enough to guarantee the same level of customer experience reached for other product categories. This applies to both delivery and refund.

It is no coincidence that no traditional brands are present within the most important players of the online market. Online sales are usually done by horizontal e-commerce such as Amazon, John Lewis and Otto. However, many players approached a vertical strategy already used for other product categories (ex. Argos, Wayfair, Home24). Some brands are also hybridizing their models creating a unique platform using elements from the marketplace, crowdsourcing, software and e-commerce sectors (ex. Houzz).

Design and furniture is one of the last markets experiencing the change of habits from physical to online purchasing. That is why the most successful companies are the ones that will first have implemented their operations in an efficient way, often at the expense of very low levels of customer experience.

Actually, high levels of customer experience are essential: good experiences improve customer loyalty allowing the adoption of up and cross-selling strategies. Working on Customer Service and Customer Relationship Management could be strategic. Brand could also play on ancillary services (such as design, personalization or remote support) that would make a difference in the customer experience.

What are the challenges for traditional players approaching the online world? Firstly, they have to choose and manage the best channels. They also have to adapt to a very dynamic and ever-changing world. As already happened for other product categories, the new trends converge on multi-channel activities and personalization as they attract younger clients (Generation Z and the swing of the Millennials tail). The multi-channel online retail approach, supported by augmented reality, will become more important every day to align both online and offline purchasing experience.