Is The Profiteering Of The Custom Home Industry A Fact Or A Bubble

- Sep 08, 2017-

 Is the profiteering of the custom home industry a fact or a "bubble"? In fact, a piece of furniture products from the factory, the exhibition, to consumer "layers of price increase, this is, of course, not random, blind price increase, but also became a custom household products artificially high, the main reason for the profit margin is not high.

Many consumers will think expensive home products there must be a windfall, but household enterprises and dealers have said himself almost unprofitable, this is a very strange thing, what is the reason? Is the custom home industry really a profiteering industry? What are their cost components? What is the profit of the household product? Someone broke it and calculated it.

The cost of a piece of furniture from the factory to the exhibition and to the consumer

1. Factory price

Direct production costs (including production material, the production of artificial, workshop manufacturing expenses) to add 28% on the basis of indirect costs (for the electricity and water loss of 2% 10%, rent, machinery, auxiliary material 3%, management personnel salary, entertaining and travel management costs by 10%, 3% tax).

2. The cost of packing and strengthening and transportation links

Including material and reinforcing framework of artificial, the transportation cost (from the surrounding areas to the urban logistics distribution, city distribution center to customer downstairs, downstairs in handling the customer home and is responsible for the installation sheet product and the actual cost).

3. The cost of after-sales service for home furnishing manufacturers

If furniture manufacturers provide after-sales service, for customers to buy real wood furniture due to weather, humidity and so on influence have a small problem is normal, you make a phone call to the factory maintenance door, these also can produce cost, so service but with the protection costs will rise.

4. Celebrity endorsement fee

In recent years, with all walks of life competing for spokespeople, star endorsement fees have been rising and rising, but not hundreds of thousands, more than ten million. Among them, hundreds of thousands of people can only buy the image of the star.

5. Environmental certification fees

At present, there are more than 10 green certification marks in the furniture market. These certification bodies have both official and non-governmental organizations, and various green environmental certifications are of high or low value.

6. Participation fee

Large furniture exhibition participation fees, space of nearly one thousand yuan per square meter, less than 9 square meters standard booths, and costs thousands, in addition to the site, and publicity, transportation and so on other costs, enterprises to participate in a large-scale exhibition, hundreds of thousands of charge is at least.

Complaint: these cause the retail price is four times the factory price

Not all furniture can be sold directly to consumers from the factory, most require stores dealer link, and stores the cost of the dealers also many, the second - and third-tier cities dealers from brands purchase price for almost a third of the retail price. For example, the "value-added" process of a piece of furniture (the following is estimated, actual prices may differ) :

Custom real wood bed price: the direct production cost of a bed is 3,200 yuan, and the actual factory price should be added with 28% indirect charge (3,200 /(1-0.28-0.12)=5333 yuan).

Store and dealer channels: 20% of the sales cost (rent and sales) dealers should guarantee at least 20% theoretical profit (5333/(1-0.4)=8888 yuan).

Product price: on the previous basis, plus external frame reinforcement materials and artificial 120 yuan. So the price tag is 8888+120= $9008.

Logistics transportation to customers: logistics from the area around Shanghai - $120 - $40 - $200 per unit for the customer's home. Total transportation cost is 260-360 yuan.

After-sales service and total price: the average after-sales service fee of the factory is 30 yuan, 9008+260 or 360+30=9298 or 9398 yuan is the final cost of a real wood bed.

Data: custom home profits are much lower than in other industries

Enterprise income tax according to the state administration of taxation, tax statements statistics calculation, selection of shanxi, shandong, guangdong, heilongjiang, chongqing, and so on six different levels of economic development in gansu province, the industry average profit margin, the entertainment industry the highest profit.

From custom household brand companies, gross margin of 30% to 30% in the industry is more normal, but high gross profit does not represent a profitable, custom furniture industry average profit margin of only 3%, the current situation is grim.

Also cannot be ignored, however, some custom household brand obtained excellent results, through reasonable operating in just disclosed in the first quarter of 2017 earnings, sibutramine household, Arnold, baby rabbit, Hollywood guest, xi rimmon net, seagull bathroom net profit rose more than 50%;

Mr Piano, who has the highest growth rate, reached 304.46 per cent. In the first half of the year, according to forecasts, Mr Pianoa's net profit was expected to grow by 85 to 125 per cent year on year.

Inquiry: why the sky-high household products are not highly profitable?

1. Home products repeat consumption frequency low, return fewer customers

Furniture belongs to consumer goods, use cycle is long, the general family can continue to buy home furniture home use for decades, and so the buyback opportunities are very few, and not like a garment industry or other sectors of the so-called "repeat customers".

2. The big-box sales model makes the rental cost high

The building materials furniture business sentiment index data showed that the cumulative sales volume of furniture and materials stores nationwide was 12,481 billion yuan, up 0.11 percent year on year. But not profit growth, and even a drop, is because of the influence of other channels has weakened the stores, profit growth rate is not big enough, at the same time building materials furniture stores excess and greatly increase the cost of the furniture industry.

3. The operating expenses of the store continue to increase

The marketing costs including the logistics cost of the household enterprises, stores rent cost, artificial cost, advertising, sales promotion fee, etc., as a result of the existence of the rate of inflation, the marketing costs are on the increase of the household enterprises in China.

The continuous rise in the rent of the stores has resulted in the compression of the profits of the dealers, especially the high rent in some high-end stores, which has discouraged many dealers.

4. High housing prices squeezed the growth space of the customized home industry

In recent years, many city real estate market of new and second-hand housing (housing, agent, rent) trading volume has dropped, the household market also gradually sleep "cold" - household consumption demand narrowed, household market competition more intense, domestic outfit building materials enterprises feel particularly.

The new industry has two features: the first is the profiteering, from the factory to the final consumer, about several times higher; The second is thin profit, an industry that barely makes money, and factories, dealers and stores are unprofitable. From the perspective of production cost, furniture is not expensive, but the cost of rent and other costs is high, so the price deviates from the value itself.

Reflection: profiteering is actually eaten by inefficiency

In fact, we are more likely to believe in the experience of the household practitioner -- many home companies can make 15 to 20 percent of their profits, even if they are high enough to make a profit.

Of course, as the external environment pressure increasing, the profit is also being a lot of challenges, but "blocked, have means to resist", many enterprises or with the aid of technology, management or marketing innovation, either using a loophole in the market is not standard, by cutting corners, exaggerated propaganda, tax irregularities, illegal employment, such as a zero-sum game, and even negative and variable method, can still twists and turns to achieve the above "super profits".

The opportunity, the ground rent, the asset appreciation does sit all in the big money, do not need to do much good value added service, do change phase to the industry even to the circulation form a lot of pressure. But according to theory, this is the common phenomenon of all walks of life, why is the contradiction of only household furniture manufacturer especially?

We believe that the key reason lies in the power of brands is too small, if the custom household industry also has a "gree", "haier" and "beauty" of large enterprises, stores again and again strong, can completely self-built channels, why gas by somebody else?

Unfortunately, the custom home industry not only has not that big MAC enterprise, even the enterprise that talks to consumer brand is very few, this also is no wonder, the other people's store will be strong. Market economy a lot of times is fair, the so-called factory big bully store, shop big bully factory, market main body of game, finally still depend on strength.

Big stores or channel brand strength, natural will impose their own rules on you, the rules may be some damage to you, but as long as legitimate, you also helpless, who call you brands of factory is too small? Who told your dealer not to find a good "daddy", not to run a good brand?

What are the potential disadvantages of small brand manufacturers and big stores? Firstly, the industry has low concentration, small and medium-sized enterprises, many short-term behaviors, and the competition rules are easily disturbed. Consumers often have no choice, and the interests are not guaranteed. Second, low industry concentration also means low market efficiency, it is hard to earn excess profit through monopoly enterprises, it is hard to through economies of scale and scope economy to absorb the cost, the same furniture, consumer often may have to pay more money to buy; Finally the distributors may be taken advantage of the "crossing", no longer content with the role of circulation, even dressed as brands themselves, on the ex-factory price of custom house products, again to add a pair of price, let consumers more pocket money worth.

We will find that in the end, the profits of the enterprise will be reduced to the low efficiency of the business management. And to improve the efficiency of industry, enterprise efficiency, but also in the enterprise bigger and stronger, and raise the market concentration, thus forming a virtuous circle: household brand to learn to economies of scale, economies of scope or other monopoly innovation to profit; The store and the dealer should first learn to circulate and service, then to scale, chain, standardization to profit.

The industry says that while many marginal businesses are suffering, some mainstream companies seem to be doing well, and some are still making a fortune.

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