Balance sheet at yesterday's annual economic press conference
What about the German furniture industry? Jan Kurth, Managing Director of the Association of the German Furniture Industry (VDM), made a detailed statement yesterday at the Association's annual economic press conference in Cologne.
"The second heat summer in a row has also left its mark on the German furniture industry. After a slight increase in sales in the second half of 2018, the German manufacturers' economy cooled down again by the summer of 2019. From January to June, sales in the industry were around 8.9 billion euros, 1.8 percent down on the same period last year. As domestic manufacturers generate almost two thirds of their sales in Germany, the current development in the sector also reflects the situation in the German furniture trade, which is characterised by significant declines in the number of visitors, particularly to large stores. In the retail sector, there is an increasing shift towards online sales. The German E-Commerce Association, for example, reported a 14.4 percent increase in sales in the furniture, lamps and decoration segments in the second quarter of this year. This trend is continuing and we consider a share of 25 percent in online furniture sales over the next five years to be realistic in the medium term. Of course, this also requires adjustment processes on the part of manufacturers, who have to think digitally about the entire process from product development to marketing. Sales via purely online marketplaces in particular require digital product data, which are also needed, for example, in configurators or in the field of augmented reality.
But the topics "online" and "stationary" are not about either or, but about both and. In a consumer survey conducted last year, we had already established that the majority of Germans [up to 40 years of age 77%, total population 48%] inform themselves online before buying furniture. These consumers are therefore much more educated than ever before when making purchases, and we should make offensive use of this together with the trade. Information on the functionality of the furniture, on the materials and ingredients used and on the origin of the product must be regarded as important distinguishing features when researching on the Internet.
The industry is not only on the move due to the topic of the online world. Although the current situation of companies can currently be described as tense, it is not entirely bad, as the survey on the economic situation conducted by VDM in the summer shows: The current business situation is assessed as satisfactory or good (39%) by 48% of the participants. Only 13 percent rate the current business situation as poor. Compared to the summer of 2018, the majority (39%) of the respondents therefore see the mood as unchanged from the previous year.
Differences can be seen in the assessment of the current business situation in Germany and in the export business. While most respondents (61%) assess the situation in domestic business as satisfactory, the picture for export business is more negative: 46% consider it satisfactory, but a further 32% consider it poor.
According to official statistics, the individual segments of the German furniture industry developed unevenly from January to June 2019. Kitchen furniture manufacturers recorded a slight increase in sales of 1.4 percent to around 2.5 billion euros The office furniture industry also reported a positive result with sales of around 1.1 billion euros (+1.6%). Manufacturers of shop furniture and other contract furniture were 1.4 percent up on the previous year and achieved sales of around 910 million euros. By contrast, manufacturers of upholstered furniture registered a decline, with sales falling by three percent to around 470 million euros between January and June 2019. The sales trend for other furniture (home furniture and furniture components) was also more negative than the industry average at minus 5.4 percent to 3.5 billion euros. The smallest segment in the industry - the mattress industry - also reported a 4.2 percent drop in sales to around 390 million euros. The situation in this segment has stabilised again to some extent after a double-digit decline in sales last year.
In comparison with official statistics, the internal surveys of our trade associations show more positive figures, which is probably primarily due to the companies with foreign branches or sales companies included in these surveys. For example, incoming orders in the German residential furniture industry rose by 4.6 percent between January and June, and by 3.8 percent in the upholstered furniture industry. The kitchen furniture industry's order values up to June were at the previous year's level (+0.05%).
In the first half of 2018, German furniture exports increased by 2.4 percent year-on-year to 5.7 billion euros. Sales to EU countries were up 3.8 percent, well above the previous year's level, and thus better than total exports. The 9.1 percent increase in exports to France, the most important export market of the German furniture industry, is particularly pleasing. Switzerland (+1.3%), Belgium (+10.9%) and Italy (+8.1%) also developed positively from the point of view of the German furniture industry. In contrast, furniture exports to such important sales markets as the Netherlands (-0.1%) and the Czech Republic (-4.7%) declined.
The furniture industry has already clearly felt the negative effects of the Brexit discussion in the course of the year to date, as furniture exports to Great Britain fell by a further 2.1 percent between January and June. Sales of German furniture in the United Kingdom already fell by 5.3 percent in 2018. A fundamental improvement in the situation is not in sight for the time being in view of the continuing lack of political consensus on Brexit and the announced withdrawal of Great Britain from the EU at the end of October.
Important growth markets for German furniture are also increasingly outside the EU. Particularly noteworthy is the outstanding performance of German furniture manufacturers in the major growth markets of the USA (+9.7%) and Russia (+27.5%). The US furniture market is currently the focus of the export activities of the VDM Export Working Group. It is also pleasing from an industry perspective that the Russian market is regaining its strength after many years of weak growth - no other major export market is currently growing faster than Russia from the point of view of German furniture manufacturers. Other non-European markets such as Japan, Canada and South Korea are also currently developing positively, although exports to these countries are still at a relatively low level. By contrast, exports of furniture to China are currently showing negative signs. Against the backdrop of the trade dispute between China and the USA and the slowdown in economic growth in China, German furniture exports to China fell by 20.9 percent in the first half of 2019. In our estimation, more domestic products are putting pressure on the Chinese market due to trade restrictions with the USA, which is weakening imports.
The industrial export ratio - this is the share of goods supplied directly abroad by domestic furniture manufacturers in the total turnover of the sector - was 32.5 percent in the first half of 2019 and thus roughly at the level of the previous year. In the first half of 2018, the corresponding figure was 32.6 per cent. Despite the minimal decline, the export quota in the furniture industry has doubled since the turn of the millennium.
The development of the individual export markets varies from segment to segment. In the kitchen furniture industry - this segment has the highest export ratio in the industry at 41.6 percent - significant growth in exports to the Netherlands (+4.7 percent) was recorded, while exports to the USA developed only slightly positively (+2.5 percent) and to Russia negatively (-6.5 percent). The decline in exports to China is even more pronounced here (-25.6%). However, in the case of non-European export markets, customs duties, which vary depending on the product, play an important role, which on the one hand affect sales opportunities and on the other lead to distortions in foreign trade statistics.
After German furniture imports had risen by 0.4 percent to 12.8 billion euros in 2018 as a whole, they fell by 0.7 percent to 6.7 billion euros in the first half of 2018. This reflects the currently difficult state of the market. Over the same period, the foreign trade deficit fell by 17 per cent to around one billion euros. Imports from Asia (+12.2%) and especially from Vietnam (+22.3%), Indonesia (+16.9%) and Taiwan (+8.4%) rose at an above-average rate. Above all, however, imports from China, the second most important importing country, increased by 11.9 percent. Poland, on the other hand, lost 1.2 per cent, but, as in previous years, remained by far the most important country of origin for furniture. More than every fourth piece of furniture imported into Germany (26%) now comes from our eastern neighbour. Overall, imports from EU countries fell slightly by 3.8 per cent. The Czech Republic was the third most important importing country with a significant decline of 13 per cent. Despite the current shifts away from Eastern Europe to Southeast Asia, the structure of German furniture imports remains highly concentrated: The three most important supplier countries Poland, China and the Czech Republic alone currently account for more than 55 per cent of total German furniture imports.