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Report from
Europe
COVID casts long shadow over the European furniture
sector
For the European furniture sector, as in other industries,
the COVID pandemic is casting a long shadow, with no
certainty yet that the most dramatic swings in supply and
demand are in the past. Several European countries,
including France and Italy, were reporting record numbers
of new daily COVID cases in the last week of January, the
increase due to the emergence and rapid spread of the new
Omicron variant, first detected in South Africa.
As a result, several European countries are once again in
the grip of tight government lockdowns. This is clear
from Oxford University’s “Stringency Index”, a composite
measure of the level of lockdown across nine metrics
(such as school and workplace closures, restrictions on
public gatherings, stay-at-home requirements, restrictions
on travel etc).
On a scale of 0 (no measures) to 100 (strictest response),
at the end of January the score for Germany (84) was the
highest in the world, while Italy (77) and France (69) were
also very high by international standards.
More positively, the Stringency Index for the UK, where
the full effects of the Omicron variant first became
apparent in Europe, was down at 48 as the government has
moved to reduce restrictions as the current wave of the
virus seems to have peaked.
This has contributed to rising optimism that the Omicron
variant, while highly infectious and still dangerous, does
not lead to the same proportion of hospitalisations and
deaths as previous variants, at least where a large
proportion of the population is vaccinated or has been
previously exposed to the virus.
So, while there is still no certainty, there is more
confidence that the market situation for furniture in
Europe will begin to “normalise” during 2022, at least to
the extent that it will be less affected by sharp changes in
demand and clogged up supply chains than in the previous
two years.
There is also greater clarity now on the immediate impact
of the first few waves of the pandemic and a widening
pool of data to work out what the longer-term effects of
the pandemic might be.
Data on global furniture consumption just published by
CSIL, the Italy-based furniture industry research
organisation, shows that, after the initial shock when the
pandemic hit in the first half of 2020, the European and
wider global market for wood furniture picked up rapidly.
According to CSIL “the prolonged period at home has
influenced consumers’ priorities and how to buy products,
with a strong growth in online purchases”.
CSIL also note that “the lockdown experience highlighted
the importance of the home which acquired a new
centrality both for living and working, becoming a new
fulcrum of our daily activities”.
This in turn fed into changes in the types of furniture
required by European consumers. According to CSIL,
“spending more time at home pointed out the usefulness of
having functional spaces for the whole family, possibly
modular furniture also suitable for working from home.
Thus, great attention has been put to the home office
environment, but also to the kitchen, the comfort segments
(from mattresses to upholstery) and the outdoor furniture”.
This led to a greater proportion of spending being directed
towards furniture as “consumers invested in improving
their living spaces, often allocating to furniture substantial
portions of income made available because of decreased
expenditure for restaurants, vacations and other leisure
activities”.
The overall effect was to limit the scale of the contraction
in furniture consumption during the initial phase of the
pandemic. CSIL estimates that the value of furniture
purchased worldwide in 2020 was US$415 billion, around
6% less than the previous year (when considered in
apparent consumption valued at production prices
excluding retail mark-up).
The contraction in 2020 was particularly large in the office
furniture sector, following the decline in investment by
both industry and the service sector, but demand in other
sectors including kitchens and outdoor furniture remained
more resilient.
Such was the strength of the rebound last year, driven by
the boom in consumer spending on furniture, CSIL reckon
that worldwide furniture consumption was already back to
the pre-pandemic level in 2021. The recovery is expected
to strengthen and widen, in terms of geographic scope,
during 2022.
The CSIL forecast for furniture consumption growth in the
EU, UK, and European Economic Area (EEA) countries -
at 4.4% in 2022 - is particularly encouraging, being the
largest for any global region. However, this partly reflects
a weaker rebound compared to other regions – particularly
the US – last year.
CSIL reckon that the extra government stimulus from the
EU Recovery and Resilience Facility – which is filtering
through rather more slowly than national level stimulus
measures around the world – will be a particularly
important driver of consumption in the EU during 2022.
CSIL reckon that furniture consumption worldwide will
grow by around 3.9% this year, with growth in North
America expected to be 4.0%.
Growth in other areas of the world is expected to be
somewhat slower including Asia and the Pacific forecast
(3.8%), the Middle East and Africa (3.3%), Europe outside
the EU inclusive of Russia and Turkey (3.0%) and Central
and South America (3.0%).
CSIL’s optimistic assessment of near-term strong furniture
market growth at a global level is reflected in other
analysis. For example, Statista’s Consumer Market
Outlook estimates that revenue from the global furniture
industry, which hit $1.3 trillion in 2020, will rise
consistently to reach $1.6 trillion by 2025.
Furniture supply chain disruption leading to rising
prices
While long-term prospects for the European and global
furniture sector look very promising, the shorter-term
impact of the pandemic continues to be felt in supply
chain disruption.
In the last two years, furniture suppliers have had to
respond to temporary, but unpredictable and often lengthy,
shutdowns in manufacturing facilities, staff shortages,
severe limits on travel by business managers and sales and
maintenance staff, material shortages and sharp rises in
material and energy prices, limited container space and a
massive hike in freight rates, store closures and other
restrictions on retailing activities.
The combination of continuing strong demand, rising costs
and tight supply is now being felt in sharply rising
consumer prices for furniture in Europe. For example, a
report in the Guardian, a UK newspaper, on significant
price hikes after Christmas, quotes an IKEA representative
as follows:
“Since the start of the pandemic, IKEA has managed to
absorb the significant cost increases experienced across
the supply chain while keeping prices as low and stable as
we possibly can. Now, like many other retailers, we have
had to raise our prices to mitigate the impact on our
business. Price increases vary but remain in line with what
we are seeing globally at IKEA, which is approximately a
9% average increase across countries and the product
range”.
The sharp rise in prices is also reflected in the latest
figures from the UK Office of National Statistics (ONS).
These show that UK furniture retail prices reached another
all-time high in November last year, following previous
records in the preceding 2 months.
Prices in November 2021 were up by 12.2% compared to
the same month in 2020. The annual rises recorded in
October and September were 11.3% and 10.5%
respectively.
The price rises in the UK were significantly higher for
imported products than for domestic production. Factory
gate price of all UK furniture destined for the home
market was up by 4.7% compared to November 2020.
Strong consumer demand combined with constraints on
supply of imported products have bolstered the position of
domestic furniture producers in the UK. ONS data shows
that during the first three-quarters of 2021, the total value
of turnover and orders for UK furniture manufacturers was
£6.6 billion, up 28% on the same period the previous year.
Orders of £901.6 million in September 2021 were the
highest for any single month since the series began in
1998.
However, domestic furniture producers in the UK, as
elsewhere in Europe, are now suffering the effects of
record price rises for materials and energy supplies.
ONS figures show that the cost of materials and fuel for
UK furniture manufacturers in November 2021 were
22.1% higher than the same month in November 2020.
Similarly, the British Furniture Manufacturers (BFM)
State of trade survey for October 2021 showed that while
furniture manufacturers were still confident in the trading
environment, the price of raw materials was pressurising
margins and cash flow. Labour costs were also on the rise.
Skill shortages were reported by more than three quarters
of respondents and in some cases the lack of suitable
labour was severe.
The BFM survey reported an average cost increase of
more than 20% for Board, Plywood, Timber, Steel and
Springs. And, across all materials covered in the survey,
the average increase stated was 15%, up from 8% recorded
in April, with surcharges being applied to some materials.
This led to a significant proportion of manufacturers to
raise product prices. Therefore, the recent relative
competitiveness of domestic furniture manufacturers in the
UK may prove short lived.
European furniture companies diversify supply to
spread risk
While recent logistical challenges may have given a
temporary boost to the European furniture industry in their
home market, the longer-term trend is towards increasing
import penetration.
In their latest report on the global furniture sector, CSIL
note that “the European market is highly integrated, with
major chains and manufacturers working on a European
scale. However, slight but continuing market openness is
registered. The origin of products sold on the market has
also changed and markets are continuously open to
imported items.
This is evident if we consider the last decade when
national production share has been decreasing, while
Asian and Pacific imports have been increasing”.
CSIL also highlight that one significant effect of the
pandemic may be to encourage European retailers to
diversify their suppliers as a means of spreading risk.
According to CSIL “Diversifying industry suppliers may
occur, not relying on single suppliers, but finding ways to
make use of components that can be sourced from many
different locations. Some large players in the global
furniture industry implement strategies of diversification
of manufacturing plant’s locations”.
CSIL also point to the fact that, while the furniture sector
everywhere, including Europe, tends to be highly
fragmented with limited consolidation, Europe is host to a
relatively large share of the large players that do exist. In
fact, 87 of the top 200 furniture manufacturers worldwide
are based in Europe. Some of these companies have
internationally integrated supply chains and have started to
produce more product outside Europe.
European companies are particularly significant at the
luxury end of the market and joint ventures with European
players have been particularly attractive to other global
firms keen to enter this segment.
The larger firms in Europe are also tending to outperform
the smaller companies, a trend which so far has been
reinforced by the pandemic. CSIL data shows that between
2015 and 2020 period, the top 100 companies in Europe
increased revenues by 15% during a period when total
European furniture production was almost stagnant.
During the pandemic, the larger companies have had more
resources to draw on to tide them over periods of
lockdown and to respond to supply chain disruption and to
build new sales channels. There has been a very
substantial shift to selling furniture online in Europe, a
trend that has been driven by giants such as Amazon and
IKEA.
In 2019, IKEA saw revenue fall to �39.6 billion in 2020
due to the pandemic, after two decades of growth.
However last year, IKEA’s sales bounced back to �41.9
billion, slightly exceeding 2019, with e-commerce sales up
73%.
New on-line business models in the furniture sector
It’s not only the existing names like Amazon and IKEA
that have benefited from the shift to on-line furniture sales.
There is also a new breed of companies focused almost
exclusively on selling furniture online.
This breed is exemplified by MADE, a UK based
company launched with £2.5 million of funding in 2010,
but which last year completed its IPO on the London
Stock Exchange with a market capitalisation of £775
million. MADE sales in 2020 reached £315 million,
around 50% in the UK and 50% in continental Europe.
Sales in the first half of 2021 were £214 million, up 54%
year-on-year growth.
The MADE business model is very different from that of
IKEA, avoiding overheads by not owning any factories
and with only a very small number of showrooms. Instead,
the company relies on online sales and building close
working relationships with designers and factories and
sourcing products globally.
But of course, companies experiencing such rapid growth
in sales are not immune to the current supply chain
challenges. In December MADE issued a profit warning
stating that up to £45m-worth of orders have been delayed
blaming factory shutdowns in Vietnam, clogged ports and
extended shipping times. Sales this year are now expected
to be around £365 million, down from £410 million
estimated earlier, but still a gain of 16% compared to the
previous year.
Another exemplar of a new business model in the furniture
sector, again exploiting new technology and innovative
sales channels.
This time for the benefit of small-scale craft-based
production in the tropics, is provided by Artisan Furniture.
This company featured in a recent article in Forbes, the
business journal, under the heading “innovation to
maintain market access for artisans”.
Artisan Furniture is a U.K. business wholly reliant on
village craftsmen in Jaipur, India, which Forbes notes has
proved resilient throughout the pandemic, racking up
double-digit growth and now on an expansion path with
financial support from Goldman Sachs GS. The company
markets and claims a price premium for authentically
Indian-made and hand-crafted wood furniture products to
retail partners such as TKMaxx, the European subsidiary
of apparel and home goods group TJX Companies, and
Spain’s leading department store group El Corte Inglès.
The Artisan Furniture business model has also involved
creating a niche online marketplace for artisan-only
products. The company’s “dropship furniture programme”
is described as a “no storage model that lets retailers ship
products directly to their client’s doorstep while also
giving artisans the freedom to craft products using
techniques they know best”.
The company is exploiting rising consumer awareness
about the environment and corporate social responsibility
with an emphasis on support for local craftspeople and
their communities, and products made from sustainable,
commercially planted woods like mango and sheesham.
The Forbes article suggests that Artisan Furniture has
helped ensure long-term prosperity for several villages
around Jaipur where more than 350 artisans form part of
the furniture company’s supply chain.
China makes biggest gains as EU27+UK wood
furniture imports rise
Recent trends in European imports of wood furniture need
to be seen against the background of rapidly increasing
demand, irregular availability of supplies from many
countries, sharply increasing prices across the board, and
efforts by European retailers to mitigate risks by
diversifying supply sources.
From the trade data, it is clear that a very large increase in
the value of wood furniture into the EU27+UK followed
on immediately from the more minor dip during the early
stages of the pandemic in the first half of 2020.
In fact, the 12-month rolling total level of imports was
close to US$10 billion by the end of October last year,
which compares to less than US$7.5 billion just before the
pandemic in the opening months of 2020 (Chart 1).
The rise in import value was partly driven by increasing
product prices and freight rates. The average unit value of
EU27+UK wood furniture imports increased from
US$3030 per tonne in the first ten months of 2020 to
US$3460 in the same period last year. However, import
quantity did rise from 2.4 million tonnes in the 12 months
to February 2020, just before the onset of the pandemic, to
nearly 2.9 million tonnes in the 12 months to October
2020 (Chart 2).
In the first 10 months of 2021, the EU27+UK imported
US$2.08 billion of wood furniture products from tropical
countries, 36% more than the same period the previous
year. While a significant rise, it should be noted that, for
tropical countries, around two thirds of the gain in
European import value was due to price increases and
rising freight rates.
EU27+UK import quantity from tropical countries in the
first 10 months last year was 523,000 tonnes, only 14%
more than the same period the previous year.
Import quantity from tropical countries for the whole of
last year is projected to be around 600,000 tonnes, no
more than the long-term annual average between 2015 and
2019.
The rise in import value of wood furniture from tropical
countries last year also pales in comparison to the rise in
import value from China. In the first 10 months of 2021,
the value of EU27+UK imports of wood furniture from
China totalled US$4.34 billion, 50% more than the same
period the previous year (Chart 3).
Import quantity from China was also up over 50%, at 1.25
million tonnes. Imports from China have benefitted from
more reliable shipping and higher availability of
containers compared to tropical countries in Southeast
Asia. One legacy of the US-China trade dispute has also
been to increase China’s focus on exports to the European
market as exports to the US have declined.
The gains in EU27+UK imports of wood furniture from
other Lower and Middle Income (LMI) countries in nontropical
regions also exceeded the gains made by tropical
countries. Import value from non-tropical LMIs in the first
10 months of 2021 was US$1.50 billion, 47% more than
the same period the previous year. Import quantity from
these countries increased 37% to 606,000 tonnes.
Chart 4 highlights that the major gains in EU27+UK
import value of wood furniture from tropical countries in
the first 10 months of 2021 were made by Vietnam (+30%
to US$820 million), Indonesia (+40% to US$430 million)
and India (+72% to US$370 million). Import growth from
Malaysia was more moderate, rising 16% to US$200
million.
The signs are that Indonesia is seeing some benefit from
the commitment to market development in the EU
building on industry-wide SVLK certification and being
the only country offering FLEGT licenses. Suppliers in
India, most of which are selling craft products into the
EU27+UK, are benefitting from the development of
innovative on-line sales channels like that described earlier
for Artisan Furniture.
The slightly slower rate of increase of EU27+UK imports
from Vietnam is probably only a reflection of supply
bottlenecks, particularly as Vietnam is also now shipping
vast quantities of wood furniture out to the US.
Of non-tropical LMI countries, EU27+UK imports of
wood furniture increased particularly strongly in the first
10 months of 2021 from Turkey (+56% to US$400
million), Ukraine (+64% to US$280 million, Bosnia
(+30% to US$240 million) and Belarus (+59% to US$230
million).
These countries in the European neighbourhood have been
major beneficiaries of supply and logistical problems in
more distant supply countries. One sign of this was the
announcement by IKEA in October last year of a plan to
shift more production to Turkey to shorten the supply
chain, and minimize problems associated with rising
shipping costs and lengthening delivery times from other
parts of the world.
The UK is by far the largest European importer of wood
furniture from Low and Middle Income countries,
importing 83% more than the next largest, Germany, in the
first ten months of last year.
During that period, imports by the UK increased 51% to
US$2.37 billion, although this followed a particularly
large 12% fall the previous year.
In the first ten months of last year, there was also a large
increase in wood furniture imports from LMI countries
into all the leading markets including Germany (+40% to
US$1.29 billion), France (+36% to US$940 million),
Netherlands (+36% to US$700 million), Belgium (+52%
to US$410 million), Poland (+57% to US$320 million),
Spain (+54% to US$310 million), and Italy (+42% to
US$230 million) (Chart 5).
Milan furniture show pushed back to summer
Instead of being held in April this year, the 60th edition of
Salone del Mobile in Milan will be held from 7-12th June
2022, prompted by "the desire to organise an event that
fully reflects the importance and the quality of the fair"
according to the event organiser.
Show president Maria Porro comments: “The decision to
postpone the event will enable exhibitors, visitors,
journalists and the entire international furnishing and
design community to make the very most of an event that
promises to be packed with new things, in total safety.”
As well as celebrating a major anniversary, the event will
focus on the theme of sustainability, acting as a showcase
for the progress made in this regard by creatives, designers
and companies.
Moving the event to June will ensure a strong presence of
foreign exhibitors and professionals, which has always
been one of the Salone’s strong points, and it will also
give the participating companies time to plan their
presence at the fair as thoroughly as possible given that, as
we know, the progression from concept to final installation
takes months of preparation".
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