The current market size of China’s home decoration industry reached $3.54 trillion, with a CAGR of 11.1% from 2015 to 2020. At the current growth rate, the overall China home improvement industry is expected to reach $6 trillion by 2025.
Ⅰ. Industry market
- Market size
The current market size of China’s home decoration industry reached 3.54 trillion, with a compound growth rate of 11.1% from 2015 to 2020; among them, the home decoration building materials market is 1.06 trillion, with a compound growth rate of 5.5%; the home decoration soft furnishing market is 1.59 trillion, with a compound growth rate of 15.5%; the home decoration service market is 0.88 trillion, with a compound growth rate of 11.1%. According to the current growth rate, it is expected that by 2025 China’s home improvement industry as a whole will reach 6 trillion.
- Market pattern
Home furnishing products and services have distinctive characteristics, low standardization, low consumption frequency, heavy service and experience, which makes China’s home furnishing industry in the rapid growth phase of natural fragmentation, fragmented development, compared to other high customer unit price, high standardization, light service experience industry, China’s home furnishing industry as a whole presents a low concentration, large market size, “big industry, small companies” significant features.
Within the home improvement industry, the degree of standardization, product volume, the degree of landing services and technical barriers also determine the pattern within the home improvement industry, wood, paint, waterproof materials and other less standardized, smaller, higher technical barriers to industry concentration is higher, while furniture, cabinets, home textiles and other concentrations are lower.
Ⅱ. The industry driving factors
China’s home furnishing industry is based on two major support is the number of commercial houses to be renovated, as well as the size of home furnishing consumer spending, in the future, regardless of new houses, stock houses in China as a whole on the home furnishing industry is weak, home furnishing consumer spending will become the main driving force, which represents the home furnishing industry has ended the “house-based”, house growth The era of brutal growth that drives the growth of home furnishings is over, and now and in the future will certainly enter the depth of the “people-oriented” era around the consumer. And from the consumer level analysis, better, faster, more suitable for the direction of growth is determined, these will bring important changes in the home furnishing industry categories, models, channels.
- The number of commercial housing to be renovated rose, but the driving force will gradually weaken
From the policy point of view, the latest policies released in 2020 are a continuation of the policy of “housing without speculation”, policy regulation is still strict, China has entered the stage of new infrastructure to support economic development. From the perspective of land supply area, China’s annual land acquisition area has remained between 200 to 300 million square meters since 2015, and the stable land supply will support the steady development of China’s real estate market, which in turn will support the development of China’s home improvement industry’s basic plate, but the total number of new houses will not have significant growth.
On the other hand, the useful life of the property is generally 50 years, but most home building products have a useful life of 8-10 years, so each suite will be renovated at least four times, which will bring about 5 million sets of renovation and decoration market each year. From the point of view of the North, Shanghai and Shenzhen second-hand sales area, fluctuating between 0.3-0.6 billion square meters, but the proportion of sales area has reached 64.3%, the stock market in high-tier cities is an important support for the development of its home improvement market; but from the national second-hand sales area, basically stable at 400 million square meters, the proportion of second-hand sales area in recent years has a declining trend, and the long-term view of the slow decline in mobile population The overall support base is not available, the impact will decline.
- Home furnishing consumer spending is growing, the future driving force gradually increases
The growth of per capita disposable income and the rise in the proportion of expenditure on housing, the structural growth brought about by the change in the distribution of expenditure, the demand for soft furnishings in the major categories of home furnishings to increase significantly. From the perspective of consumer spending on home furnishings in China, consumer spending on home furnishings is correlated with per capita disposable income, with a growth rate of 7.2% from 2015 to 2020, and per capita disposable income reached 43,800 yuan in 2020.
In addition to the growth of disposable income, the proportion of residential expenditure is also increasing year by year, accounting for 24.6% of disposable income in 2020. the average cost of home improvement expenditure in China was 150,000 in 2017, growing to about 200,000 in 2020; the proportion of hard furnishings in the distribution of home improvement expenditure is slightly decreasing, and the change in the distribution of expenditure will bring structural growth opportunities in the industry.
Ⅲ. Industry trends
- With the rise of the refined housing market, the head of the industry to speed up the inflection point has arrived
In the context of China’s real estate liquidity control has become the norm, the larger volume of real estate enterprises with financial advantages, will continue to accelerate the project landing, the real estate market will again to the head concentration. Cooperation with leading real estate enterprises in the refined and complete installation mode will lead to the further rise of home improvement brands with stronger engineering channels, and omnichannel control will make it easier to capture the preferences of different types of consumers and enhance competitiveness of the brand.
In 2017, China’s Ministry of Housing and Construction issued a notice on the issuance of the “Thirteenth Five-Year Plan” for the development of the construction industry, proposing to comprehensively develop an incentive policy for the delivery of fully furnished new buildings, increase the proportion of fully furnished finished products delivered to new residential buildings, and propose that by 2020, the area of fully furnished finished homes for new construction will reach 30%. Thanks to the rapid development of China’s urbanization, the penetration rate of China’s finishing industry has reached 32% by the end of 2019. 2020 saw the unexpected arrival of the global pandemic, and some real estate enterprises in third and fourth-tier cities adjusted their strategies to “change finishing to rough sales”, but the penetration rate of finishing still exceeded 30% by the end of 2020.
As the upstream of the home improvement industry, China’s real estate industry is undergoing fundamental changes, changing the genetic structure of the home improvement industry’s survival soil. With the advent of the era of finely decorated houses, many developers will choose to cooperate with strong, well-known large home improvement companies in the industry, accelerating the elimination of small and medium-sized home improvement companies and gradually tilting resources to head companies. Scale advantage will create greater scale advantage, which is the basic law of reshuffling in all walks of life, the home improvement industry head speed up the inflection point has arrived.
- The rise of young consumers, service humanization and design personalized enterprise advantage is obvious
According to the latest data, in 2020, in China’s home improvement industry, the size of the personal end of the consumer demand reached 1.2 trillion magnitude, the demand for second-hand room renovation, renovation bureau change will gradually become the mainstream market demand. Among them, the post-80s and post-90s occupy 84% of the total consumer group and is on a steady upward trend. Home furnishing consumer body tends to be younger, consumption capacity continues to grow, from the purchase of products gradually transformed to enjoy the service. It is observed that lifestyle is the core element of the new generation of consumers most concerned about the decoration, and the parents of the pursuit of the practical first concept of decoration, young consumers increasingly pursue quality and personality, willing to pay a premium for high-quality, personalized products or services. “Small town youth”, “after 95”, “single aristocrats” will become the three new main forces of consumption.
From nine custom furniture listed companies revenue growth, 2013 to 2019 compound growth rate of up to 24.9%, far exceeding the average growth rate of the industry, and “high definition” and other hot phenomena also represents the evolution of custom model of differentiation.
If the past decade was the industry market driven by product, price, channel and promotion, then the new decade will be defined as the industry market with product, design, service and experience as the core elements. At this stage, Chinese consumers are more concerned about distinctive product design, consumer-centered service and experience than about products and prices, forcing traditional decoration and building materials companies to make huge changes in their marketing models, and those self-centered sales models and design approaches will enter a declining life cycle stage. Those with humanized service and design personalized enterprises in this environment will increasingly prominent advantages.
3. Health has become the industry’s new wind, environmental protection materials are more popular
Along with the upgrading of consumption, Chinese consumers not only put forward higher requirements for home environmental protection, but also willing to pay extra for higher-level environmental protection products. At the same time, with the “Technical Standards for the Control of Indoor Decoration Pollution in Residential Buildings”, which is called the most stringent environmental standards in history, the official implementation, not only make a comprehensive and effective solution to indoor decoration pollution has since had a standard basis and institutional requirements, and is expected to make home environmental protection farewell to simple quantitative upgrade, and achieve a qualitative breakthrough.
Environmental protection has become the main consideration of Chinese consumers in the purchase of renovation building materials, whether the product’s materials are environmentally friendly to a large extent determines whether consumers choose this product. The relevant data show that more than 80% of Chinese users in the choice of painted wall materials, wood flooring, furniture and wood panels, the environmental protection of the material (no formaldehyde and other harmful substances) is the first consideration, followed by the basic performance of each decoration material, etc. 80, 90 as the main force of home improvement, the group’s income is higher, the renovation budget affordability is stronger, there is capital to pursue a slightly higher price but more environmentally friendly aldehyde-free home improvement materials. According to the survey, consumers not only expect aldehyde-free home decoration, but are also willing to pay 14% more. 53.5% of the Chinese renovation population said they would definitely choose to use aldehyde-free products for the whole house if they were available.
In addition, Chinese consumers’ awareness of formaldehyde prevention has increased significantly, as shown in the safety issues related to living, decoration pollution has become the primary concern of consumers; decoration is considered the main source of formaldehyde, more than 70% of the decoration crowd agreed that formaldehyde is from furniture, panels, wall materials and other interior decoration; formaldehyde testing is considered a necessary process for new decoration, the survey shows that 68.6% of the crowd plan to test, and 19.3% have tested. 19.3% of the population has been tested.
- Digital intelligent home furnishing usher in new development opportunities
The traditional Chinese home improvement industry suffers from many persistent problems such as opaque interest patterns, low operational efficiency and poor consumer service experience. Due to the long-standing lack of standardization and standardization in the industry, Chinese home improvement consumers face difficulties in choosing the pre-decoration process, poor experience in the mid-decoration process, and difficulties in maintaining their rights at a later stage. In the context of continuous growth in market demand, the core consumer groups are increasingly young, the industry pain points are not cured, the home improvement industry digitalization, standardization is imperative, the industry opportunities and challenges coexist.
Driven by the divergence of channels and traffic, digitalization can bring more traffic conversion possibilities, the use of digital solutions for multi-channel management, panoramic consumer management to better alleviate the flow problem. In order to better solve the “people-oriented” pain points of the home improvement industry, catering to the market trend of better, faster and more suitable for consumers, the digitization of the whole area of consumers, the digitalization of the whole process operation, the whole life cycle of the product digital demand is spreading. Home improvement industry concentration brought about by digital input positive cycle, model innovation brings data innovation value, the Internet brings the trend of quality data asset accumulation.
At present, the home improvement industry digitalization is still a strategy among leading Chinese enterprises, the majority of small and medium-sized enterprises have no digitalization to speak of, do not have a digital foundation, and no better service digital tools for small and medium-sized home improvement enterprises, the maturity of the industrial Internet will bring the possibility of digitalization of the long-tail market.
In the digitalization process of leading enterprises, from 2013 to 2016 basically belong to the stage of informatization, online, etc., after 2017 began to enter the real digital marketing, digital production, digital management system construction, use stage. At present, the digitization of the whole industry is still in the early stage.
Digitalization has certain applicable conditions that will help leading companies grow, and leading Chinese companies will accelerate the digitalization process to form a positive development cycle. Model innovations such as custom home improvement require a high degree of digitalization from the product and service processes, and this will further enhance the value brought by the model innovation. Internet home furnishing promotes multiple links online and part of the link standardization degree, which will bring the advantages of constantly precipitated data assets. The digital transformation of the home improvement industry has improved the overall quality of service, especially the aura of the first A-share listed home improvement companies, attracting more and more consumers, which will be an irreversible trend in the development of the industry.
- Capital enters, the industry to welcome a major reshuffle
China’s home furnishing market has been claimed to have a scale of four trillion, in the past 2020 was more stormy, ushering in a number of giant players into the field.
In 2020, from the frequency and data of equity investment and financing in the field of home furnishing and home furnishing, financing information statistics for 35 times, a significant decline from 63 times in 2019, but still maintain a certain degree of activity, whether in the Internet home furnishing, home furnishing supply chain, home furniture, smart home and other areas have a certain number of projects of investment, which in the installation of the speedy match and deformation blocks 2 companies in the current year also received two consecutive sizes of the investment, indicating that nearly 2 trillion home furnishing market and very low industry concentration is still not a small attraction to capital.
From the segmentation, Internet home decoration and smart home is still a relatively hot direction of investment, these two areas of financing events accounted for more than half of the total, but at the end of the year in the traditional home decoration track, Shanghai Hujia Huyi decoration received Purun and Qizhao capital’s more than 100 million yuan of strategic investment worthy of attention, after years of silence, the traditional home decoration track seems to have a new investment opportunity.
From the stage of investment, the event of strategic investment accounted for the highest proportion, especially in the first half of the “sweeping” investment in the field of home furnishings Beyoncé, as well as Xiaomi Group in a number of home furnishings, home furnishings investment layout, showing the future trend of industrial integration in the field of home furnishings home.
From the point of view of the investment stage of the segmentation, the Internet home furnishing early project investment events, home furniture field late and strategic investment, including the first domestic professional home live class network platform “QiTuan network” received IDG investment, whether there will be more innovative home furnishing, home online traffic entrance and traditional channels in the court, perhaps can be expected.
From the home furnishing field active investment institutions, Alibaba, JD, Xiaomi, Fosun Rui is more active, in addition to a number of home furnishing industry capital present among them, the future can be expected to have more listed home furnishing, home furnishing companies will participate in the process of industry chain integration, with the help of capital, China’s home furnishing industry will gain more high-quality development momentum, but also will bring a major reshuffle of the industry.
Last April, the shell of the home improvement service platform was the official release of the nest home furnishing; Red Star Macalline also defined home furnishing as the first business, Gomez Holdings home furnishing BIM platform dressing home officially put more efforts into home furnishing service platform; July, Xiaomi Yangtze River Industry Fund invested in Woodland, Woodland is the leader in the LED packaging industry, and the acquisition of OSRAM’s famous Lundvance; Dongyi Risheng in July also to Xiaomi Technology raised a sum of not more than 134 million; August 28, JD Autumn Home Furnishing Festival kicked off, a full 9 years of brewing home furnishing ambitions also broke out at this time; or last year, Tmall Home Furnishing released four strategies of “localization”, “content”, “service upgrade” and “supply upgrade”. Alibaba vice president, general manager of the Tmall Home Furnishing Division Chui Xue said at the summit: “The digitalization of home furnishing is 3 years ahead of schedule. In the next 3 years, the digitalization rate of home improvement will increase from 10% to 20%, and the transaction scale will reach 1 trillion. Alibaba will integrate the power of the economy to promote the rise of the home improvement industry online, with technology as the forerunner.”
On another level, the entry of capital giants has undoubtedly raised the entry threshold of the market, which will also prompt the Chinese home furnishing industry to usher in a wave of sand. 2021 competition in China’s home furnishing market continues, a large number of outsiders have long arrogated this huge cake, a steady stream of entrants such as Suning, Gome, Meituan, Tencent, Baidu, Byte Jump, etc., for the pretend track or has long been around for a long time. The industry will usher in a major reshuffle.
Ⅳ. Conclusion
The fluctuation of China’s home improvement industry in the context of economic downturn often indicates pattern reorganization and deep change, while the various trends of personalization, quality and openness to innovative models shown by young people in home consumption are forcing the deep change of home improvement market. The heat of the capital market directly reflects the market and trend changes in the home improvement market, becoming a barometer of the overall development momentum of the home improvement sector. Under the shadow of the pandemic, there are still dozens of companies in China’s home improvement industry that are attracting cross-border investors to enter and successfully raise funds. The home improvement market still has vast room for growth.
Source: 36kr