The furniture market continues to be affected by the crisis and will not come through it unless the real estate market recovers, say top players in the field. The lean times have created a new brand of customer, more quality-oriented and price-conscious than ever before. The pieces of furniture being sold right now have to last over a lifetime and be passed on to future generations, they must no longer be easily replaceable goods, suited to passing trends. Business Review talked to several players on the market to see how they are coping with the tough times and their hopes for future development.
Romania’s furniture industry dates from over a century ago and has seen both better and worse times.
Aurica Sereny, president of the Romanian Furniture Manufacturers Association (APMR), set out the fact and figures that illuminate the situation in which the furniture market presently finds itself. In 2009, the total turnover for the industry reached EUR 969.1 million, a 15 percent decrease compared to the results in the last successful year before the crisis, 2008. Now, however, estimations are EUR 950 million for this year, as in the first semester the preliminary results were EUR 478.5 million.
Sereny says that the best results in the industry came from exports, which performed better than the domestic market.
Production for the first six months in 2010 reached an 8.2 percent growth compared to last year, with exports achieving a 114.2 percent rise for the same period. Imports, however, managed a total of EUR 205.2 million, 88.9 percent of last year’s figure.
Estimations for the second part of the year are more optimistic, as is usually the case on the furniture market, says Sereny. Worst affected by the crisis was the office segment, where no new products appeared, either on the internal market or in the region. After suffering a 32 percent dip in 2009, the office furniture segment will continue its slide this year as well, the APMR president predicts.
Furniture firms have sought to deal with the crisis by cutting back on staff. From 56,800 employees working in furniture-connected positions in 2009, now only 49,200 are active in the field. Some employers have resorted to reducing work schedules. Companies have faced difficulties regarding financing, or with the internal suppliers of raw materials, which may not be sufficient for internal demand (this is the case with resinous wood, Sereny explains). In spite of the crisis, though, other companies have successfully reoriented their activity in the most profitable direction, that of exports. While in 2007-2008 the market was more internally oriented and exports were almost neglected, now great efforts are being made to go beyond the Romanian borders.
Customer behavior has also changed as a result of the crisis, as shoppers now think twice before making a new purchase, says Sereny. The price-quality ratio is the most important criterion when choosing a new product, with durability being a very convincing argument to people who “are now searching for a product that will last for generations,” she adds.
Sereny is not optimistic over a bounce back. “Things will not improve unless the real estate market does, as the two are very much codependent,” she says. This is also the reason why office furniture no longer draws buyers. Firms are disappearing from one day to another and unless new office locations are built, demand will continue to diminish further and further, cautions the president.
The individual market players also help complete the picture. Ikea, now on its third year on the local market, with an Ikea store in the Baneasa commercial area, had “a RON 349.24 million (VAT included) turnover in 2009, meaning a 9 percent drop compared to the same period of 2008,” says Mihaela Muresan, marketing manager at the Romanian branch of the Swedish furniture store.
Ikea’s key differentiator consists in value for money, as the store “offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them,” says Muresan. This is not down to the crisis, but the general strategy that the brand adopts internationally, she adds. In Romania, the store did not raise its prices to reflect the VAT hike. In September, prices were even lowered by an average of 12 percent and “almost 4,000 products from the total 8,500 of the Ikea range have prices that are 5 to 60 percent lower,” continues the marketing manager.
Muresan has noticed changes in consumer behavior since the financial crisis. Echoing Sereny, the APMR president, it seems that at Ikea too, consumers have become more cautious, “because of a ‘crisis of trust’ in the stability of their own income in the current global context,” she explains. Now it appears that “people are oriented towards long-term investments and purchases that can bring them more value for money,” she adds.
In terms of how the crisis has affected other suppliers on the internal market, as part of an international group, only “5 percent of the Ikea range in our store is produced in Romania. The rest comes from suppliers of the Ikea Group worldwide, and there are over 1,200 suppliers in over 50 countries. As a part of the Ikea Group, this allows us to benefit from economies of scale on volumes purchased at global level, which basically means lower costs,” says Muresan. Referring back to development plans announced in 2007, she says that new stores will be opened in Romania, but at the moment no additional details can be given.
Class Living, premium and luxury furniture retailer, has existed on this niche on the Romanian market since 1997-1998, after having begun in 1994 as an importer of home and office furniture. Owner Camelia Sucu says that like any other company on the market, Class Living has also had to take specific measures to cut costs. “Human capital was the last one I considered in this respect. I tried as much as possible to avoid layoffs and salary cuts.” Administrative consumption was the main focus and was reduced as much as possible. Negotiations with suppliers to obtain price reductions followed.
New collections were created – which brought no alterations to “comfort, functionality or design,” Sucu says – for more accessible prices, as the market now demands. The niche consumer has not altered his or her behavior significantly: people still want the same quality, but are paying more attention to price. The VAT increase, for example, was not passed onto customers.
Luxury furniture has also been affected by the real estate slump, as consumers have become fewer. The company’s main clientele is now made up of individual buyers. “I think that office furniture consumption will increase a bit though, as more statistics have suggested that there has been an improvement in this sector in the recent months,” adds Sucu.
Regarding development, the owner says that a concept store has been launched, Iconic Class Studio in Bucharest, which is regarded as an extension to Class Living, and where more focus is put on design, creativity and consumer interaction. This is a place meant to transform creativity into future products and lines, an interface between customer and furniture supplier, explains Sucu, a location where the lifestyle induced by the products is most visible.
Corporate Office Solutions (COS) has been operating in Romania for 13 years as a furniture company for office consumers. Cristophe Weller, managing partner of COS, says that the firm registered a turnover of RON 52 million in 2009, a 9 percent decrease compared to 2008, which was the best year in its history. The profit in 2009 was RON 5.45 million, and in 2010 a similar sum is expected.
The crisis did not occasion any personnel reductions, but involved outsourcing, renegotiating the warehouse leasing contract, as well as suppliers’ flexibility on payment terms and “sourcing new products that can match the lower budgets of our customers,” Weller explains. General expenses were reduced by 15 percent and extension plans were also achieved, with an agent now covering the area from Timisoara to Cluj. Plans made in 2008 to open an office in Sofia and in 2009 to open branches in Romania’s main cities have been postponed until the market recovers.
In terms of client evolution, it seems that corporate buyers want to send a message through the furniture that they choose, which is “that they are very cautious about their spending,” says Weller. Regarding the future, the COS managing partner anticipates no “real improvement before 2012. In the corporate segment, new opportunities will appear middle to end 2011, when anchor tenants sign pre-lease agreements for buildings that will be delivered in 2012, but they will concretize into orders only in 2012. The next 12 to 18 months will be hard, without many relevant projects to complete.”
Casa Rusu is the name of the stores of the Rus Savitar furniture manufacturer, which has been on the Romanian market since 1994. In 2009, group turnover reached over EUR 20 million, a 5 percent increase compared to 2008, says Cristian Rusu, general manager of Casa Rusu. So far, the firm has absorbed an EUR 18 million investment, EUR 15 million of which went on production and logistics and EUR 3 million on retail.
Around 40 percent of Casa Rusu’s business is retail, while the rest focuses on the corporate consumer Dedeman, a retail chain of construction and interior design materials for home users. As Rusu says, “the best solution for Rus Savitar at the moment is to go to its consumer with its own products, through its retail division,” since sales consistently increased after the furniture manufacturer’s retail division opened.
Despite the crisis, Rusu says that the company has opened showrooms and plans to open two new stores. “The measures that we took to overcome the crisis focused on developing our own market by opening new stores, starting with the one in Sibiu and ending with the most recent one, opened in Bucharest,” reaching a total of nine.
Casa Rusu and Rus Savitar also anticipate new recruitment, around 120 hires by the end of the year, Rusu says. Reductions from suppliers of around 10 percent were obtained.
Customers are spending 10 percent less than they were on furniture compared to 2009, but an interesting trend is the increasing demand for television space, due to the rising popularity of LCD TVs. The VAT increase was partly borne by the furniture company and through different promotions.
Furniture company Quadra Invest reached a turnover of EUR 3.6 million last year, compared to the EUR 4.7 million registered in 2008, administrator Laura Banica says. Similar results as in 2009 are expected for this year, with exports being the most profitable direction for the moment.
The most important investments went into exhibiting products, with a more spacious showroom being purchased in Bucharest.
To deal with the crisis, no layoffs were made, some activities were outsourced, production processes were simplified, a wider product range was introduced, prices were reduced and some of the VAT increase was absorbed by the company.
Innoffice, which has been active on the office furniture segment of the Romanian market since 2007 and with an over 95 percent corporate client basis, has invested over EUR 500,000 on the Romanian market. “In spite of the crisis, we continue to invest in personnel training, product quality improvement and increasing the furniture collections that we sell,” says Mirela Dumitru, general manager at Innoffice.
However, on account of the crisis, the opening of a new Innoffice showroom is currently postponed. No staff were laid off, however real estate investments were postponed, the operating point was changed for one with a better price and barter contracts were signed. The firm hopes the market will bounce back by mid-2011, but Dumitru remains skeptical.
Techo, a regional player on the furniture market, provides services in the area of fitting out commercial interiors. It is present in Romania with centers in Bucharest and Cluj. Its customers include major banks, financial institutions, international companies and public sector organizations. The company says that despite a drop in demand caused by the global crisis, and also an unprecedented fall in prices, it managed to significantly increase its market share last year, not just in the Czech Republic, but in Central and Eastern Europe as a whole. The company’s market share in the CEE market increased by 1.5 percent.
Since 1993 Techo has expanded its operations to cover a large part of Europe. Today it has branches in Great Britain, Slovakia, Austria, Hungary, Romania, Croatia, Russia, Ukraine and Georgia. In 2005 a three-year business partnership with the Dutch group Royal Ahrend NV, one of the five largest office furniture producers in Europe, culminated in the company taking a 75 percent controlling stake in Techo. The acquisition was completed in the spring of 2008 when Ahrend became the 100 percent owner of Techo.