Building on 'Eurostyle'

A shopper looks at lamps in Ikea's store in Beijing. The simple style of the Swedish home furnishing giant has made it a household name among Chinese residents in big cities such as Beijing and Shanghai. Doug Kanter / Bloomberg

European furnishers ride on Chinese popularity in booming property market

China's home furnishing business, dominated by "Eurostyle", is set to ride on the country's booming property market.

Chinese homeowners' preference for European furnishings, ranging from furniture, toilet fixtures and kitchen systems, is creating huge opportunities for European producers and suppliers, with many European brands such as Ikea, Gaggenau and Hansgrohe becoming household names.

Home designers say European home furnishing manufacturers will also step up their presence in China as their home markets are depressed by the constraints of government austerity programs. So far, more than 200 European furniture brands have established branches in China. Of these, 20 or so are well-established brands in their home markets. These include Republic of Fritz Hansen from Denmark, Vitra from Switzerland and B&B from Italy.

These European high-end furniture companies are welcomed in first-tier Chinese cities including Shanghai and Beijing. They are also gaining popularity in second-tier cities in prosperous coastal provinces including Hangzhou in Zhejiang province and Qingdao in Shandong province.

In a furniture exhibition in Ningbo, Zhejiang, a lotus-shaped dining table that received the golden award in the 2007 Milan Furniture Fair was sold within 30 minutes after the opening of the exhibition, for a stunning price of 750,000 yuan (85,327 euros).

Despite the promise of brisk sales and fat profits, European furniture companies are known to take a rather "leisurely" approach in entering the Chinese market. After opening its first outlet in Shanghai in 2000, Avarte, a leading Finnish furniture company, spent the following five years in the research and development of new products for Chinese consumers.

"Actually, our company was not making much profit here during the six years starting from 2000, the year we first entered the Chinese market. But sales have been growing significantly since 2005. We sold a total of 60,000 chairs in 2010, six times the sales we made in 2005," says Avarte China marketing manager Ni Shuangquan, who has been working with the company for more than six years.

Avarte specializes in office furniture. Despite its high price, the company's products are selling well on design and quality appeal, which, according to Ni, are beginning to take precedent over prices in the minds of many potential Chinese buyers. "The prices of our products are, on average, twice as high as comparable products made by local manufacturers," he says.

Yrjo Kukkapuro, design director of Avarte, has seen his works published in world-renowned design magazines such as Domus for years. "Together with a number of younger designers, Kukkapuro has brought to China a distinctive design style from northern Europe," Ni says.

When the company first came to China, its simple design style did not jibe well with Chinese business people who were used to a much more elaborate "heavy" style, Ni says. "But we are glad to see that the simple European style, popularized by mass market producers such as Ikea, is becoming mainstream these days," he says.

Of course, some customization of the original design is needed to adapt to local market conditions. For instance, the overall dimension of a piece of furniture needed to be downsized to fit the average Chinese physique.

To get it right, Avarte has cooperated with local designers to arrive at the best compromise. Having worked with the design teams of Tongji University in Shanghai, the company in 2000 established its China design center in this city.

Initially, Avarte was looking for a design partner in the private sector.

"But we found that the design style of most our potential partners in the private sector were incompatible because of their focus on traditional Chinese culture, which is impossible to be incorporated well into our design concepts," Ni says.

Among Avarte's most coveted clients in Shanghai are the Shanghai Grand Stage, an important entertainment venue in Shanghai, and government conference halls. They have also observed that their products are better displayed in art zones such as Red Town in central Shanghai or the 798 Art Zone in Beijing.

While these high-end furniture brands may seem out of reach to many Chinese consumers, Ikea Group, the Swedish home-furnishing giant, is the "Eurostyle for the masses". With the first store opened in Shanghai in 1998, Ikea now operates eight outlets, including one in Shanghai and one in Beijing. The company is planning to more than double its stores on the mainland by 2015.

"We are aiming to have 16 to 18 stores on the Chinese mainland by 2015 in a combination of first-tier and second-tier cities," says Gillian Drakeford, Ikea China's retail president.

The company's ambition probably sits on its significant growth in the Chinese market. Ian Duffy, president of Ikea Asia-Pacific, says that the company grew on average by 15 percent year-on-year in each of the past 12 years. In the 2010 fiscal year, Ikea's revenue in China increased by 23 percent year-on-year to 3.7 billion yuan (425 million euros).

"Although the Chinese market amounts to a small share of our global business right now, we are confident that with our speed-up expansion and China's robustly growing economy, China will be the Ikea Group's biggest market in 15 to 25 years," Duffy says.

"We are satisfied with what we have done in the past years, but, we will go further to lower our prices in the future, making our products accessible to as many people as possible here in China," Duffy says.

Ikea has established a business system in China that covers production, sourcing, logistics and retail. "That's the reason we can reduce the price of our products in China, for example, a coffee table from 199 yuan 10 years ago to 39 yuan today - the cheapest in the world," Duffy says.

At the end of 2010, Ikea started the construction of its second store in Beijing in the city's southwestern Daxing district, together with a super-size shopping center, a co-investment of the Ikea Group and its sister company the Inter Ikea Centre Group.

The shopping center and store, with a total investment of more than 5 billion yuan, is the biggest investment worldwide in a single project for Ikea, Duffy says.

By 2015, Ikea and Inter Ikea will open two more shopping centers, together with Ikea home-furnishing stores in Wuxi, Jiangsu province, and Wuhan, Hubei province.

Ricky Yin studied architecture in Australia for more than six years and now is an assistant architect with a leading design institute based in Wuxi, a neighboring city of Shanghai. With a keen observation of the latest design trend and a discerning eye for style, Yin says Ikea appeals to her because of the simplicity apparent in the company's design style.

"The price offered at Ikea is of course one of my concerns. When I first returned home and thought of getting a table for my studio, I was surprised to find that one ordinary writing table offered at the Chinese furniture chain stores would cost as much as 2,000 yuan, which is about 10 times the prices offered at Ikea," says Yin.

"But apart from money, the simple style of Ikea furniture attracts me the most," adds Yin.

With years of overseas experience, Ikea is now more of a lifestyle to Yin than simply a home furniture supplier. It was the best place for her to take some time off with her friends.

"We used to drive several hours to the nearest Ikea store, probably only for a small tea table. But usually we would end up with nothing after going around for four or five hours. Actually window shopping in Ikea is already pleasant," says Yin.

"It is good to hear that Ikea is likely to open a furnishing store in Wuxi soon. I can finally find some place to get some nice stuff and hang around with my friends at the same time," Yin says.