At the end of the summer of 2018, the German furniture industry is looking at a cautious sector development. After a decline in sales in the second half of 2017, the manufacturers' financial state improved slightly in the first half of 2018, but the bottom line is that furniture sales, especially in Germany, are on the spot. While the start of the year in the environment of the imm cologne was still clearly positive, a clear calming of the business then set in, explained the Association of the German Furniture Industry (VDM) at an annual press conference in Cologne.
From January to June, the sector's turnover was around € 9.1 billion, slightly up by 1% on the same period of the previous year. Following a decline in sales of 0.7% for the whole of 2017, which was characterized in particular by negative momentum in the second half of the year (-1.6%), German furniture manufacturers were again able to generate slight sales growth, but the situation is not satisfactory.
Only export markets are growing
The slight growth was exclusively due to the foreign business account. Export sales increased by 2.7% in the first six months compared to the same period of the previous year. By contrast, domestic sales stagnated at a minimal rate of 0.3%. The export business profited from the revival of demand in important European sales markets and increasingly from the positive economic development in the major growth regions outside the EU. Almost a third of German furniture exports are now sold in non-EU countries.
In the summer of 2018, the VDM conducted a survey on the economic situation of companies in the industry. The current business situation is rated by the participants as satisfactory (34%), bad (40%), only 26% assess the current business situation as good. Compared to summer 2017, the business situation has deteriorated, according to 51% of respondents.
The divergence between the domestic and export markets is also reflected in the business survey: While most domestic respondents (57%) consider the domestic situation to be poor, the vast majority of manufacturers consider the export situation to be good (29%) to satisfactory ( 56%).
Online purchases twice as high as officially reported
The currently difficult domestic demand is basically confirmed by the furniture trade. Although the persistently high summer temperatures would have shifted many activities outside, but this statement alone falls short. In order to get more insights here, the VDM commissioned a representative study from the market research institute Kantar TNS in July, which examined the purchasing behavior of Germans in furniture. Above all, people were interested in where people find out about furniture and where they buy it. Is it the advertisements in daily newspapers or the websites of retailers? Do people increasingly buy furniture on the Internet or is the official distribution channel statistics correct, which has been stably stable for years at between 7 and 8 percent?
According to this, in addition to the furniture business itself (68%) and its brochures (54%), 48% of all respondents now use the Internet as a source of information and inspiration for buying furniture. In the younger target groups (<40 years) it is even 77%, but the furniture store still comes to 63%. The use of the Internet as a source of information increases with higher education.
As for the actual purchase, 14% of the furniture has been bought online over the past five years. 10% for pure online retailers, another 4% for online pages of a furniture store. 75% of the furniture was purchased in the furniture store. For online buyers, single households and under-30s are well ahead.
Kitchen, office and shop furniture plus
The individual segments of the German furniture industry developed unevenly between January and June 2018 according to official statistics. Kitchen furniture manufacturers posted an increase in sales of 4% to around € 2.5 billion. The office furniture industry reported a clearly positive result (+ 7.9%) with sales of around € 1.1 billion. The manufacturers of shop and other contract furniture were also up 7.2% on the previous year, generating sales of around € 920 million.
Upholstery and home furniture and mattresses in minus
There was a noticeable decline in upholstered furniture manufacturers, whose sales fell by 5.3% to around € 480 million between January and June 2018. Turnover in the residential furniture, furniture and furniture sectors, at minus 1.6% to € 3.7 billion, was also more negative than the industry average. The smallest segment in the industry - the mattress industry - recorded the most significant decline in sales of 12.8% to around € 400 million. However, this must be put into perspective with reference to the above-average sales growth in this segment in recent years.
Brexit hails EU exports
German furniture exports rose by 2.2% to € 5.5 billion in the first half of 2018 compared to the same period last year. Unit sales to the EU countries, at 1.2%, were only slightly above the level of the previous year and thus significantly weaker than total exports. Although exports to the main export market of the German furniture industry to France increased by 3.5%, also the Dutch (+ 6.2%), the Polish (+ 10%) and the Spanish market (+ 6.1%) developed positively from the perspective of the German furniture industry. However, furniture exports to important markets such as Austria (-1.3%) and Switzerland (-3.8%) were down.
The furniture industry has also been hit hard by the negative impact of the Brexit discussion and the devaluation of the pound so far this year, as furniture exports to the UK fell 8.9% in the first half of 2018. No other major export market outperformed the United Kingdom from the perspective of German furniture manufacturers.
Export outside the EU is growing strongly
The most important growth markets for German furniture are currently outside the EU. Particularly noteworthy is the outstanding performance of German furniture manufacturers in the major growth markets USA (+ 9.5%), China (+ 25.9%) and Russia (+ 14%). Due to the respective market size and the strong demand for high-quality furniture, these results are certainly expandable. Other non-European markets such as Canada, Mexico, Japan, South Korea and Singapore are also developing positively, although exports to these countries are still relatively low. Overall, the non-EU countries should develop in the coming years to an important growth engine of the German furniture industry.
The industrial export rate - this is the share of goods delivered directly by domestic furniture manufacturers to the total turnover of the industry - climbed to 32.6% in the first half of 2018, reaching a new high. In the first half of 2017, the corresponding value was 32.1%. Since the turn of the millennium, the export quota in the furniture industry has doubled.
Export support: New VDM working group Export
The success of German furniture manufacturers abroad is due to the quality, delivery reliability, design and individuality of our products. German manufacturers often master the processes and logistics better than their international competitors. These are important buying arguments for consumers - in Shanghai, St. Petersburg and San Francisco alike.
With exporting increasingly important for the industry, the VDM will soon expand its export support to companies: a new VDM export working group will serve the exchange of individual manufacturers, set the focus markets and coordinate the industry's entire export and trade show activities. The know-how about the individual export markets is communicated to the furniture manufacturers in the context of information days and workshops. At the same time practical work aids will be made available for the successful engagement of German furniture manufacturers abroad. These additional export activities should help German furniture manufacturers to gain further market share in the global market.
Furniture imports also continue to rise - Poland remains the most important import country
Import competition remains high: after German furniture imports had risen by 0.8% to € 12.7 billion in 2017, they rose by 0.6% to € 6.6 billion in the first half of 2018. However, the trade deficit narrowed by 8.1% to around € 1.2 billion in the same period due to the significant increase in exports. Overall, East European furniture imports in Germany are increasingly gaining ground against Asian competitors. Poland gained 7.4% and, as in previous years, remained by far the most bulky furniture country of origin. More than every fourth piece of furniture imported to Germany (26.3%) now comes from our eastern neighbor. The Czech Republic remained the third most important import country with a slight increase of 0.7 percent. Overall, imports from EU countries increased significantly by 1, 8 percent increase. By contrast, imports from Asia fell at an above-average rate (-5.9%), in particular from Vietnam (-12.3%), Taiwan (-13.9%) and Indonesia (-9.8%). Imports from the second most important importing country, China, were also down sharply, falling by 5.2%. The structure of German furniture imports shows a high concentration: The three most important supplier countries Poland, China and the Czech Republic currently account for around 56 percent of total German furniture imports.
Outlook: stable business situation - cost increases have a negative impact
Almost two-thirds of the participants in the VDM survey expect the business situation to remain the same over the next six months. 24% of respondents expect an improvement, only 12% expect the situation to worsen. Respondents estimate that the economy will be impacted in the coming six months mainly by rising commodity prices (33% of respondents), skill shortages (27%), increasing import pressure (18%) and increasingly protectionist trade policies (9%) ,
Especially the rising material costs for solid wood are an obstacle to the development of the sector. The companies surveyed in the German furniture industry report an average increase in solid wood costs of 9% compared to the summer of 2017. Timber materials increased by 5% and logistics costs in the same period also by 5% and staff costs by 3%. In view of the market power of the purchasing associations, this increase in costs could not be adequately passed on to the German furniture trade.
While the contribution of foreign markets to the turnover of the German furniture industry is expected to remain positive in the second half of the year in view of the recent very significant growth, domestic economic activity is becoming increasingly gloomy. Consumer sentiment in Germany is also easing. The economic forecasts for the current year have been revised down significantly by the leading economic researchers. Against this backdrop, the VDM expects sales growth of around 1% for the full year 2018.