New kitchen, new bed, new desk: during the pandemic, but also afterwards, Germans have invested heavily in their own four walls. "My home is my castle" has also taken on a new meaning as a result of the home office boom. Furnishing has long been about more than just living, but also about table and chair height or optimal lighting for the home workplace. In the meantime, the good mood has faded. In this interview, Marc Fahrig, sector & retail expert at enomyc, explains the background to the turnaround and explains how retail and industry can meet the challenges.
Mr Fahrig, where do you currently see the biggest challenges for the industry?
Keeping control of costs in companies and getting people to buy in order to ensure that those companies survive. This is the top priority for the industry at the moment. Liquidity is extremely important in this phase.
Which areas are affected most by the crisis?
Upholstered & living room furniture and kitchens, but also office furniture. These are the largest sales blocks in the companies.
Does the crisis in the construction industry also play a role?
Yes, a big one. Private residential construction fuels the classic living room and kitchen furniture themes, as well as the accessories and decoration segments, because people usually furnish their homes from scratch. Commercial construction is particularly important for the office furniture and kitchen segments. The crisis in the construction industry is also "blocking" relocations. People are avoiding moving into properties with high new-build rents or high purchase prices right now. This is reflected in the lack of new purchases in the furniture sector.
How would you assess the development on the cost side, i.e. energy, raw materials, labour and transport costs?
Companies are struggling with individual cost items to very different degrees. Although the situation is easing on the materials side, new burdens are constantly arising for both industry and trade, such as the upcoming toll increase. All of this comes at an inopportune time and, like every price increase, it is accompanied by the question of who can and should bear the costs.
Overall, I continue to take a critical view of the development on the cost side, as the economic situation is poor in addition, and companies have hardly any opportunities to compensate for this.
However, there is also a positive side to that, as companies are forced to consider possibly long overdue optimisation measures, similar to those taken during the coronavirus pandemic, when digitalisation topics suddenly gained massive momentum. If you approach it strategically in the right way, you can benefit from such measures in the future.
Where do you think companies stand when it comes to digitalisation?
There is still a lot of catching up to do, even if the industry is in a slightly better position than the retail sector. With a few exceptions, outdated merchandise management systems and a lack of digital processes are the order of the day. There is also a lot of room for improvement when it comes to integrating digital processes into the overall system, CRM, data-based services and augmented or virtual reality. Companies urgently need to seek help in that respect in order to be fit for the future and more resilient to crises.
Is there any room for manoeuvre for investments in the current situation?
In that respect, too, the sector presents a very heterogeneous picture. Not so long ago, many companies had to pay instalments for energy costs that were much much higher than "normal" payments. As a result, liquidity suffered at a time when turnover was already declining. It has become fundamentally more difficult to raise capital and some companies are struggling due to economic and cost-related developments, making investments difficult.
Others, after many successful years and good or lucky decisions, are still in a position to optimise or even buy.
What should companies do now to take countermeasures?
They urgently need to scrutinise their cost and financial structures. Liquidity is almost more important than earnings in the current phase. In addition, they have a long list of homework to do that differs from segment to segment.
In the industry, companies that have a strong brand and are excellently positioned in terms of procurement, production and organisation now have an advantage. This means that companies have optimised their operational processes and working capital, are willing to change, are digital and have made sustainability an inherent part of their business model. Now, companies with a strong service and product portfolio are even more competitive on the market, not just when it comes to attracting new employees.
The situation is somewhat different in retail. Here, those businesses reap the benefit who look after their customers and know how to inspire them with professional advice, joint sales or good after-sales measures. Stable customer frequency is also extremely important, both in-store and online. To achieve this, you need a strong, contemporary marketing mix, outstanding communication and you need to offer unique customer experiences. You also need to have good control of your operational processes and cost structure.
What potential do you see for new business models such as rental, customised furniture or fee-based craftsman services?
In urban agglomerations or megacities, rental models are certainly an interesting topic, especially due to the often foreseeable useful life of the rental periods. Branded products are already being bought second-hand. Linking up or cooperating with tradesmen's firms or even setting up your own tradesmen's network can be worthwhile, even if there are some legal issues to consider.
I am convinced that now is exactly the right time to think about or test new business models. In addition to all the pressing, current operational issues, those responsible in companies also need to think about how to proceed strategically.
Mr Fahrig, how do you see the furniture industry developing over the next one to two years?
I think that the problems will continue to worsen in the short term. Interest rates and construction costs will not fall quickly enough to alleviate the construction crisis. The cost of living and uncertainty among the population are also likely to remain at a high level. In addition, I see many other geopolitical and economic risk factors that currently offer little cause for optimism.
Do you believe that the current crisis in the industry will lead to a wave of insolvencies?
I am afraid that there will be an increasing number of insolvencies, which will probably affect industry more than retail. However, in the retail sector, the current situation could lead to intentional and unintentional consolidation (e.g. through business closures or sales). The measures needed to avert the problems simply cannot be implemented so quickly. This crisis will not only affect some companies in trade and industry, but will also hurt some banks and lenders. I can recommend the current WDR report on "Furniture makers in crisis", which underpins this assessment.
Thank you very much for the informative interview, Mr Fahrig.
What questions do you have about the furniture industry? Please feel free to contact us! We look forward to hearing from you.
