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INDUSTRIAL REPORT ON

FURNITURE INDUSTRY

SUBMITTED BY

N. BALA AJESH GOUD

CONTENTS

1
Introduction to Furniture
Industry................................... 3
Global Furniture
Industry...................................................... 4
India - a preferred destination for
IB..................................... 7
Introduction to Furniture Industry in
India........................... 8
Furniture Industry Value
Chain............................................. 12
Industry Growth, Trends &
Forecasts................................... 13
Key Demand Drivers of Furniture
Industry........................... 15
Major Players in
India............................................................ 16
Industry
Analysis....................................................................
18
Drivers & Challenges faced by Indian
Market........................ 20

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INTRODUCTION TO FURNITURE INDUSTRY

The furniture industry has a long history. From the ancient


Greeks, Romans, and Egyptians through the Middle Ages, the
craft of furniture making has evolved with technology. Where
once furniture was necessarily crafted by hand. The twentieth
century has seen technological advancements that allow all
manner of furniture items to be automated and mass-produced.
In the United States, the furniture industry began with the
traditional methods of hand crafting. As the division of labour
(task specialization) method was applied in the nineteenth
century, furniture production began to increase, and the
division between furniture manufacturing and sales developed.

Furniture sellers developed the practice of buying


furniture at wholesale prices from manufacturers and selling
them in showrooms, which gained popularity in the mid-1800s.
Large stores kept their own workshops for specialty items. With
the rapid development of retail trade the direct link between
the customer and the furniture maker began to disappear. By
the early 1900s mass production of furniture was well

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established in the United States, with principal manufacturing
centres at Jamestown, New York; High Point, North Carolina;
and Grand Rapids, Michigan.

In attempts to generate more sales many manufacturers


entered agreements with retailers to showcase their products.
The concept proved successful as the manufacturer had access
to a dedicated retail outlet, and the retailer received
proprietary rights on the goods. A vendor-ship program was
also created, allowing consumers to choose the furniture in a
showroom and then having the manufacturer ship these items
directly to their household; this allowed the showroom to carry
fewer inventories. Wholesale distribution of furniture became
divided into two categories: household/garden and
office/business.

Global Furniture Industry:

World production of furniture is worth about US$ 376


billion in current US$. This estimate is based on CSIL processing
of data from official sources, both national and international,
that cover the 60 most important countries.
The seven major industrial economies (which are, in
order of furniture production, the United States, Italy, Germany,
Japan, France, Canada and the United Kingdom) together
produce about US$ 159 billion. The furniture production of all
high income countries combined covers 58% of the world total.
Furniture production in middle and low income
countries currently amounts to 42% of the world total in value.

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There are three countries (China, Poland and Vietnam) where
production is increasing rapidly thanks to investments in new
plants especially designed and built for exports.
World furniture trade basically involves 60 countries.
The leading importers are the United States, Germany, France
and the United Kingdom. The major exporters are China, Italy,
Germany and Poland.

Percentage breakdown of world furniture


production:

WORLD TRADE OF FURNITURE (US$ BILLION)

In 2009 the world economy was in recession and furniture


demand has decreased in all large furniture markets (i.e. those
selling more than US$ 10 billion of furniture at retail prices),
with the exception of China and India.
Conditions are expected to stabilize in 2010 and substantial
growth is expected in China, India and Russia.
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Other major markets (the US, Canada, Australia, South
Korea) will grow moderately. In all other large markets demand
will be either stagnant or decreasing.

FURNITURE CONSUMPTION IN LARGE MARKETS,


2009 & 2010. FORECAST OF YEARLY CHANGES IN
REAL TERMS:

Real change forecasts

2009 2010
UNITED STATES -10% 1%
CHINA 6% 6%
GERMANY -5% 0%
ITALY -11% -1%
UNITED KINGDOM -10% -5%
FRANCE -4% 0%
JAPAN -10% 0%
CANADA -3% 1%
SPAIN -10% -5%
INDIA 5% 6%
AUSTRALIA -1% 1%
SOUTH KOREA -5% 1%
RUSSIA -10% 3%

INDIA – A PREFERRED DESTINATION FOR


INTERNATIONAL BUSINESS

India has undergone tremendous economic development


in last few decades. Considering the fast growing and barely
tapped middle class market, India has now become one of the
most favoured destinations for international businesses to

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expand. Some of the major changes and recent trends that
have given strength to Indian economy include India joining the
trillion-dollar GDP club, fast growing middle class with rising
income levels and majority of Indian population falling in below
34 years of age. These trends along with the growth in sectors
like real estate have a significant positive impact on the
Furnishing Industry in India.
Moving its population out of poverty and generating huge
demand, India has undergone tremendous economic
development in last few decades. Considering the fast growing
and barely tapped middle class market,. To be precise, India
today is seventh most attractive destination for foreign direct
investments, after US, China, Brazil, UK, Mexico & Germany.
Following part of this chapter outlines the major trends and
changes that India has gone through during past decades.

INTRODUCTION TO FURNITURE
INDUSTRY IN INDIA

The Indian furniture industry is fragmented in nature with


many small players. In terms of value, this industry is worth INR
350 billion maintaining a growth rate of 10 percent. The
organized sector, which accounts to 10 percent of the total

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market, has contributed significantly to the overall industry
growth by witnessing significantly higher growth rate between
17 and 20 percent. However, the unorganized sector, as
experts opine, is growing only at a rate of 5 to 6 percent.

The furniture sector in India only makes a marginal


contribution to the formation of GDP, representing just a small
percent (about 0.5%), which indicates a huge potential for
growth. It is estimated that the furniture industry comprises
25% of the construction industry and hardware comprises 40%
of total furniture industry, out of this 20% is replacement and
20% is new. Wood and wooden products, furniture and fixtures
carry a weight of 27.01% in the total manufacturing sector.
The furniture industry employs a total of around 30,000
workers. The future on the furniture sector in India seems
positive. Talking about production, several agreements have
been signed between local producers looking for technology
and European and Asian companies trying to reach a potential
opportunity in costs.
From the commercial point of view, India shows good
perspective to sell furniture in the following years. First of all,
because its size and secondly due to the newly acquired taste
as a result of exposure to western furniture style.
India is one of the largest consumers of wood in South
East Asia. Until a few years ago the county had considerable
quantities of available tropical woods. The most common
species in Indian forests are teak, rosewood, ebony, laurel,
pine, cedar and rubber trees. Supply of these “ready to uses”
species became scarcer due to unconditional and inappropriate

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exploitation and also due to growing concern about the
environment.
In India, natural rubber plantations covers 520,000
hectares with another 6,000 hectares replanted almost every
year since 1994. Kerala state (South India) produces 95% of the
total supply of rubber wood in India

India imports wood (logs) especially from Malaysia,


Indonesia, Myanmar, Ivory Cost, Cameroon, Nigeria, Ghana,
South Africa and New Zealand and to some extend from South
America. Most soft and hard woods are imported from Russia,
Scandinavia and other South East Asian counties. MDF is
imported from Europe, and there is also a small local
production. Veneered panel are becoming more popular in India
and are imported from the European Union and the USA. The
total size of Indian furniture industry is estimated at Rs. 350
thousand million but almost 85% of this is unorganized. The
remaining 15% is organized and is believed to be growing at a
steady pace of 12% to 15% per annum.
The share of the wooden furniture market is estimated at
Rs. 600 million. Woodworking industry of India is one of the
fastest growing in the county’s economy. Much of this growth
has been fuelled by the increasing access to modern machinery
and technology through easier import policies as a result of
India’s entry into the WTO in the year 1990s. There is a
noticeable shift in the preference towards mechanized mass
production and the up gradation of technology.

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FURNITURE INDUSTRY COMPOSITION:

As with the global market, home furniture is the largest


segment in the Indian furniture market, accounting for about 65
per cent of furniture sales. This is followed by, the office
furniture segment with a 20 per cent share and the contract
segment, accounting for the remaining 15 per cent.

HOME FURNITURE:

The size of the overall real estate industry in India is


estimated to be around US$ 12 billion. Home Furniture is
growing at 30% for the last few years. Almost 80% of real
estate developed in India is residential space and the rest
comprise of office, shopping malls, hotels and hospitals. Within
the household segment, major share is the middle class
population of India. About 25 per cent of the urban middle class
populations live in homes with five rooms or more, while 45 per
cent live in houses with three rooms or less.

OFFICE FURNITURE:

In line with the growth in the Indian economy and


subsequent demand for office space, this segment has
witnessed good growth at a compounded annual growth rate of
20%. The thrust on real estate and office construction is
expected to sustain in the near future, indicating continued
growth for the furniture industry

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CONTRACT FURNITURE:

It primarily caters to hotels and its growth is consequently


linked to growth in tourism and development of new hotels. As
per the World Travel Market‘s Global Report 2008, scope for
new tourism development could be seen notably in emerging
economic giants India and China, which are likely to remain a
strategic priority as growth is predicted to be robust, albeit slow
down in global economy. The growth of hotel industry in India
can be attributed to the recent growth in the service industry
and economy as a whole.

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FURNITURE INDUSTRY VALUE CHAIN

IMPORTERS

RAW MATERIAL SUPPLIER


WHOLESALERS RETAILER
MANUFACTURERS

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INDUSTRY GROWTH TRENDS AND
FORECASTS

Maintaining a decent rate, the overall furniture industry


has grown at 10% since last two three years. An interesting
trend underlying this growth rate is that the organized sector of
the industry has shown a better growth falling between 17% -
20%.

This faster growth of organized sector can be attributed


to certain factors like:
• Growth of overall organized retail industry is the most
important reason for faster growth of organized players in
furniture industry. This can be further attributed to higher
disposable incomes, changing lifestyles and India‘s overall
economic growth.

• Lack of Time - Now days nobody has the time to employ a


carpenter to get his or her furniture made in home, like
earlier days. Especially with the growth in the number of
double income families – where both husband and wife
are working, no one has the time to get the furniture
made by the carpenter.

• Convenience - Customers no more want to take the pain


for deciding designs or raw material for their furniture.
Now, they just want to go to a retail store, select

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something that they like, which goes along with latest
trends, which suits his wallet and buy immediately.

Considering the recent developments in organized retail


industry and rapidly changing consumer markets as constant
factors, the overall furniture industry is expected to grow at
15% CAGR for next five years.

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KEY DEMAND DRIVERS OF FURNITURE
INDUSTRY

Consistent growth in the Indian economy and rising living


standards are the key factors driving the demand of the Indian
furniture industry. Other than these two, factors and sub-
factors having significant influence on the industry demand are
as follows:

REAL ESTATE GROWTH

RETAIL INDUSTRY GROWTH

CHANGE IN CONSUMER DEMOGRAPHICS

KEY GROWTH

NEW AFFLUENT INDIAN CONSUMER

TOURISM & HOSPITALITY INDUSTRY

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MAJOR PLAYERS OF BRANDED
FURNITURE IN INDIA

1. Godrej Interio:
Godrej Interio is a unit of Godrej - One of the largest
engineering and consumer products companies in the country
having varied interests from engineering to personal care
products. Godrej Interio, the leading player in organized
furniture industry of India, is present in both office and home
furniture, with more focus on office segment. Along with this,
Godrej Interio also specializes in providing customized solutions
to some specific institutional segments like labs, navy etc.

2. Style Spa Ltd:


Zuari Chambal Group of K. K. Birla conglomerate
promotes Style Spa Furniture Limited as a company. The
company is pioneer and one of the largest manufacturer in
panel based furniture made from particleboard. Indian
Furniture Products Limited is the manufacturing company;
furniture manufactured in this company is sold under the brand
name of Zuari. Style Spa is only into home furniture, except for
less than one percent of their customized services to some
special institutional segments. Further, in home furniture
category, Style Spa has positioned itself as specialist in

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Bedroom Furniture. Bedroom furniture accounts for 65% of the
total sales. Remaining 35% is from living room and
miscellaneous categories.

3. Durian Industries Ltd:


Durian is mainly into manufacturing of plywood, PVC
doors, and decorative veneer. 1998 onwards Durian entered in
furniture trading, which is importing and distributing in India.
Durian currently imports furniture from Malaysia, China,
Thailand, Spain, and Italy. It is also into manufacturing, but only
for some categories of furniture - chairs, modular workstations.
98 percent of Durian‘s Sales is from imported furniture and only
2 % is from domestically manufactured. Durian is present in
both categories - Home as well as Office furniture. In case of
Home furniture, it is present in almost all types of products.
However, Durian has limited presence in case of office furniture
– Office table, Office chair, Conference table and Book Shelves.
4. Tangent:
Tangent is a chain of sprawling showrooms that put
together everything an office or a home needs. The furniture is
gathered from all over the world. Spain, Italy, Malaysia, France,
Hong Kong with a firm grip on the international furniture pulse,
when we feel that you might like some furnishing, we bring it
down for you. Furniture designs at Tangent are renowned for
their elegance, international appeal, durability and affordability

Bedrooms and living rooms, cosy nooks and comfortable


dens- our furniture will fit right into your lifestyle. Set for
bedrooms and living rooms. Recliners, couches, sofas and

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settees, loveseats, beds, dressers, dining tables… the list is
endless.
For your office needs, Tangent offers ergonomically designed
contemporary seating, spacious desks, open plan office
systems, and much more. All of these are designed to utilize
space in an optimum manner and promote productivity.
Comfort and durability are the trademarks of our business
furniture line. At Tangent your every space requirement will be
met. We invite you to help us make your dreams come true.

INDUSTRY ANALYSIS

FIVE FORCES MODEL:

BARGAINING POWER OF THE SUPPLIER 2. BARGAINING POWER OF THE CUSTOMERS

3. COMPETITIVE RIVALRY

4. THREATS OF SUBSTITUTE PRODUCTS 5. THREAT OF NEW ENTRANTS

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Low
High

1. Bargaining Power of the Supplier:

Low, as raw material is not only available from local


abundant supplies but can be imported as well, with imports
getting easier day by day Till date, Supply side is largely
dominated by the unorganized sector.

2. Bargaining Power of the Customer:


With fast growing middle class and changing lifestyle,
huge demand is there. Only a limited number of dominant
players are present in the organized sector. However, in
absence of the latter there is a possibility switching to
unorganized.

3. Competitive Rivalry:
Industry shifting from highly unorganized towards
organized sector Moderate competition among handful of
players existing in organized sector.

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4. Threat of Substitute Product:

No significant threat except for the possibility of new


concepts like plastic furniture, virtual office space, traditional
furniture, small homes. Such concepts might take years to
come, but can have significant impacts.

5. Threat of New Entrants:


Because of growing domestic market, large business
conglomerates are planning to enter the industry in organized
sector. (E.g. Reliance, Aditya Birla Group). At the same time,
industry entry does not require very huge investments. No
other significant barriers.

DRIVERS AND CHALLENGES FACED BY


INDIAN FURNITURE MARKET

India is the fourth largest economy in the world and it’s


the largest democracy with second largest GDP among
emerging economies. World Bank’s President James D.
Wolfensohn confirmed that India is not the world’s 4th largest
economy after USA, China and Japan in PPP (Purchasing Power
Parity). It is also one of the ten fastest growing economies in
the world. With 1 billion populations, India remains on the
fastest growing economies and even in the present worldwide
economic slowdown, has maintained GDP Growth rate of nearly
6%. India today is 7th most attractive destination for foreign

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direct investments, after US, China, Brazil, Mexico and
Germany. Besides, India offers higher rate of returns and
profitability than anywhere else in the world. Out of 1 billion
population the upper and middle class constitutes 20% or 200
million people (or 30 to 40 million houses). By rent per capita: •

• 2 percent of Indian has a per capita income in excess of


14,500 Euros, which means 20 million people.

• 8 percent of Indians have a per capita income of more


than 3,900 Euros, which means 80 million people.

• 10 percent of Indians have a per capita income in excess


of 3,200 Euros, this is about 100 million people.

• The Indian market has been enormous with a large base.

• Levels of affluence are high- with the number of


individuals in the “high: income demographic group
doubling each year, according to NCAER statistics.

• The actual “disposable” income at the disposal of the


affluent Indian is as high as three to five times higher as
the official statistics, on account of the very large
proportion of unaccounted (“black”) money income.

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• The market has, due to exposure to overseas products
and lifestyles, displayed the willingness and ability to
purchase overseas brands and products at high prices.

• Customs duties and tariffs have been drastically reduced,


in keeping with government policy to open up the
economy – a policy which has stayed constant despite
changes in government. All the products in the INDEX
product range are now permitted for import into India
under OGL or the Open General License, which implies
that no special import license is required for import.

• Despite the cut in duties, the rate of customs duties is


fairly substantial which makes the prices of products
higher in India. There is a huge demand for furniture,
hardware and fittings, DIY equipment, lighting and
consumer non-durable and appliances.

• While the Indian middle class still does not have as high a
rate of obsolescence as the US, and tend to use their
furniture for several years before changing or upgrading,
the actual size of this segment makes investment in this
market more than worthwhile. The affluent classes
however, do have high rate of obsolescence of interior
decoration products and redecorate constantly.

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All the above factors put together make manufacturers and
retailers of a wide range of consumer durables. Several
overseas companies have already entered the market and have
been extremely well received by the market.

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