Why do home appliance companies still need to make efforts in this field when the home decoration market is starting to become competitive?

Focusing on the front-end decoration market and intercepting orders from the forefront of home decoration demand is becoming one of the breakthrough directions for China's home appliances, home furnishings and other industries in the new stock cycle. However, there are still many unknowns as to whether the front-end market is as easy as imagined and whether this road can ultimately be paved. A regional distributor of home appliance brands told China Home Appliance Network, "2023 is a year of extreme internal competition in the front-end decoration market. There are too many people dividing the cake, and some merchants who were originally eager to enter this market choose to leave."

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The front end market with severe internal competition

"In 2023, the pre decoration market will become even more involved than the years when the epidemic was closed down. Why does this happen? Because all enterprises involved in the pre decoration customization industry, such as building materials, decoration, furniture, home appliances and even the Internet, are rushing in with one head. Taking the home furnishing industry as an example, there will be more than 60000 whole house customization factories in China, of which less than 50 enterprises have an annual output value of more than 200 million yuan, and a large number of small factories with an annual output value of about 20 million yuan flood the market. Their design mix is very flexible, and they can seize the market at a very low price. As the real estate industry moves from the incremental era to the stock era, the user base of the pre decoration market will more exist in the stock market, and enterprises will gain customers. The channel and the difficulty of getting customers are all changing," said the above brand dealers.

In the process of visiting channels on China Home Appliance Network, many home appliance stores are introducing businesses from different industries such as home furnishings and building materials. However, there are many entrants and many exits. Fan Yong, General Manager of Mianyang Jiafulai Electric Appliances, once mentioned that Jiafulai had invested in building a building materials company, but with the downturn of Mianyang's real estate market, the group completely closed the building materials company in 2023. "We have also acted as agents for some tiles and cabinets, but in the current market situation, some bosses have collapsed and stopped working, resulting in a large area of empty cabinets."

On January 18, 2024, listed home decoration company Dongyi Risheng released its 2023 performance forecast, with an expected net profit loss of 185-226 million yuan. The company has been experiencing significant losses for two consecutive years. In 2020, Xiaomi Technology invested 139 million yuan in shareholder Yi Risheng and acquired 5.01% of its equity. This move is also seen as Xiaomi's overall solution for home decoration, incorporating its smart home appliances into the home decoration system as a strategic layout. However, it seems that investing in Dongyi Risheng has not brought the expected results for Xiaomi.

Coincidentally, in 2021, JD.com strategically invested 534 million yuan in Shangpin residential distribution. In the cooperation announcement, Shangpin Home Furnishing mentioned that on the one hand, the company will provide authentic products for JD's offline stores, and on the other hand, it will undertake the decoration and landing projects of JD's internal and commercial stores. JD will make new attempts in offline stores in the home Furnishing category based on its supply chain and offline channels within its system. At the JD booth in AWE2023, a large number of overall home furnishings scenes were indeed presented to the audience. However, in the past two years, the performance of Shangpin Home Furnishings has not been satisfactory. On the one hand, there has been a general decline in operating revenue, and on the other hand, the main home furnishing business has not been able to bring effective profits. According to the latest performance forecast released by Shangpin Home Furnishings for 2023, the company is expected to make a profit of 58-75 million yuan in 2023. However, based on its published operating data for the first three quarters, there may be some "moisture" in the profit forecast. Firstly, from January to September 2023, the revenue of Shangpin Home Distribution was in a downward trend, with a decline of 6.59%. At the same time, the operating profit, which represents the main business operation status of the enterprise, was also in a loss state. Even if the company achieved profitability as expected, the source of profit is also questionable, which may be due to gains in taxes, tax deductions and refunds, or a significant increase in the fair value of other assets; Of course, it is also possible that the company's operating performance suddenly improved in the fourth quarter, enough to offset the losses in the first three quarters. However, in terms of the overall sluggish performance of the home decoration market, the possibility of Shangpin Home Furnishings adjusting its profits is far greater than the possibility of a significant improvement in its fourth quarter operations. In fact, in the past two years, there have been frequent reports of Shangpin Home Furnishing franchisees running away, and JD Investment's book value has also shown a significant floating loss state.

In the past few years, China's high-end housing market has developed rapidly, and many home and appliance companies have obtained a large number of front-end decoration engineering orders through "binding" real estate developers, ushering in rapid growth in performance. However, real estate companies such as Evergrande have successively exploded mines, greatly dragging down the performance of supporting enterprises, especially home customization companies such as Sofia, Piano, and Golden Mantis, which have been severely affected, with serious bad debt losses. A person in charge of a home furnishing enterprise has stated that in the coming years, businesses that owe debts, businesses that cannot recover money, and businesses that receive advanced funds must not be done. "In the past, home furnishing enterprises achieved rapid revenue growth through advanced funds to undertake projects, but in the face of a downward economic environment, this undoubtedly became the stupidest behavior."

After 3-4 years of severe environmental challenges, the "Matthew effect" in the front-end decoration industry has become prominent, and advantageous resources have accelerated to gather at the top. Compared to Dongyi Risheng, Shangpin Home Furnishings, etc., the overall business performance of Oupai Home Furnishings is better. In 2023, Europa is expected to achieve a revenue of RMB 22.479-23.603 billion, a year-on-year increase of 0% -5%, and a net profit attributable to shareholders of RMB 2.957-3226 billion, a year-on-year increase of 10% -20%. In addition to the traditional advantages of customized cabinets, customized wardrobes, and other core categories, Europa Home has also expanded its integrated kitchen, soft furnishings, and kitchen appliances business, covering the entire home appliance chain including home appliances, main materials, substrates, soft furnishings, and more. On the AWE2023 display stage, Europa showcases its customized home appliance business, with its nested home appliance products not only including traditional home appliance brands such as Bosch, Siemens, and Panasonic, but also its own branded kitchen appliances.

Searching for new breakthrough points in the front-end decoration market

The real estate front-end decoration market has stalled, and the consumer confidence in the retail market is insufficient. Large expenditures such as decoration need to be slowed down. In this situation, companies that are making efforts in the overall decoration market are also looking for new breakthrough points, such as the "gas renovation" project. Cherry Blossom Kitchen's Northeast Regional Manager Wang Changlong told China Home Appliance Network that large-scale "natural gas replacement liquefied gas projects" are currently being carried out in northeastern provinces and cities such as Jinzhou, Dalian, and other northern provinces and cities. Many replacement projects are being carried out in old residential areas. Based on this situation, Cherry Blossom and Honghua Gas have reached a cooperation, which can not only provide users with kitchen and bathroom products such as smoke stoves, integrated stoves, and gas water heaters, but also contract the overall renovation projects of user kitchens and bathrooms. Wang Changlong believes that gas companies directly connect with the user end, and they are also the most aware of the needs of local community owners. They can often achieve a purchase of a certain product or service by one company, driving other owners to "follow the trend" and intercepting orders from the place where the demand initially arises.

At present, there are two main directions for brands to focus on the layout of the front-end decoration market. The first is to cooperate with home appliance and home decoration enterprises to jointly promote the development of the overall decoration model; Another type is centered around the traditional advantage categories of enterprises, creating a one-stop whole house ecological scene solution, such as Haier's Three Winged Bird and Europa's overall kitchen.

Guolian Securities analyst Guan Quansen told China Home Appliance Network that in the home appliance field, the front-end attributes of household central air conditioning, kitchen appliances, and smart home systems are relatively strong. Therefore, Haier, Midea, and other comprehensive white electricity companies, as well as Fangtai, Boss and other kitchen appliance companies, were among the early brands to enter the front-end decoration market. In the home decoration retail channel, the front-end decoration proportion of central air conditioning has reached 10%, and the proportion of kitchen appliances in offline building materials channels and cabinet appliance comprehensive stores has reached about 21%. The front-end decoration proportion of other emerging categories such as smart home systems, smart door locks, smart toilets, smart switches, and smart clothes hangers is also constantly increasing.

However, he also mentioned that due to the highly non-standard design and construction, the concentration of the Chinese home decoration market is still low, and the company's business volume and communication efficiency are lacking. At the same time, the home decoration process is lengthy, and there are drawbacks such as high labor costs and opaque prices. Therefore, the layout of the pre decoration market requires enterprises to balance profits and losses. In addition, major brands are still facing ecological barriers, inconsistent industry standards, and lack of interoperability among smart home products. In 2022, the International Connectivity Standards Alliance released the Matter standard, which is the world's first application layer protocol developed to address the interoperability of smart home devices. However, the issue of ecological incompatibility between enterprises will still exist in the short term, and related industry standards need to be continuously established and improved in the future.

Oupai's Secretary of the Board of Directors, Ouying Ying, stated that the current domestic economy is in a stage of recovery and revitalization, and the phased statistical data to some extent reflects trends such as weak consumption and downgraded consumption. However, home decoration is located downstream of real estate, and the unfavorable situation in the upstream will inevitably have a certain impact on the downstream. However, Europa believes that the difficulties are only temporary. From the long-term direction of the market, the integrated form of home appliance purchase, including full decoration and customization, is favored by consumers and has an accelerating trend. This ecological change is very rapid, which also leads to significant challenges for traditional single item retail models. The migration of patterns can bring pain to enterprises, but it is a price that must be paid to adapt to the new ecosystem of the industry.

"From the performance of the real estate industry in 2023, there are significant regional differences among different cities. We predict that the supply of new houses may gradually decrease in the future. However, the demand for purchasing existing or existing homes will continue to grow. Regardless of the size of the market, for a single enterprise, increasing the unit value of each household is the only principle. Regardless of whether the total demand increases or decreases, enterprises should still try their best to increase their own identity value."

In 2023, Ningbo Yingfeng Ruihe Investment Management Co., Ltd., controlled by He Jianfeng, the former owner of Midea Group, spent approximately 8.9 billion yuan to acquire 242 million shares of Gujia Home Furnishings, becoming the actual controller of Gujia Home Furnishings. The industry interprets this acquisition as a new path for the integration and development of Midea Home Furnishings and Home Furnishings. Haier, which has been focusing on the overall decoration industry earlier, announced in the first three quarters of 2023 that its three winged bird scene home furnishings transaction amount was about 4 billion yuan, surpassing the revenue of many traditional home customization enterprises. As highly market sensitive enterprises, Haier and Midea's pace is actually implying that whether willing or difficult, the trend of integrating home appliances has arrived around us.