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Navigating through the complexities of economic pressures, the home furnishing sector in China is grappling with the dual impacts of real estate dynamics and evolving consumer preferencesAs the industry transitions from a phase of rapid growth to one focused on quality development, companies are adjusting their strategies to maintain stability in profit margins amidst a shifting landscape.

With the real estate market undergoing a transformation, home furnishing companies are facing challenges, particularly in the first half of 2024. Sales from properties are slowing, as the decision-making cycle for consumers lengthens, forcing companies to rethink their business approachesWhile profits remain relatively stable, the adjustments are evident as companies take steps to counteract the challenges of decreasing demand.

Larger manufacturers are leveraging their financial and operational scale advantages to build robust production bases aimed at reducing delivery times

Efforts to break through capacity limitations are accompanied by an emphasis on accuracy and minimizing return rates, thereby providing much-needed support to front-end sales while simultaneously lowering operational costs for both manufacturing and distribution.

Concurrently, a rising tide of new consumerism is altering furniture purchasing methodsToday's buyers are leaning towards the pursuit of personalized, all-in-one solutions with shorter response times and practicality at the forefront of their mindsThis shift is leading home furnishing companies to move away from mere product range expansion to a strategy that emphasizes bundled selling following the acquisition of traffic—a method aimed at maximizing sales potential amid a fragmented demand landscape.

As 2023 comes to a close, government policies aimed at restoring consumer confidence in the real estate sector are emerging

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National support for furniture renovation programs is gaining momentum, positioning the home furnishing sector as a potential beneficiary of post-real estate cycle growthLeading players, including manufacturers like Sofitel and Oppein, have responded by implementing employee stock ownership plans and shareholder dividend plans, outlining ambitious growth targetsMeanwhile, companies such as Nice Home and ZB Home are securing funds to expand production capabilities, suggesting an ongoing process of industry consolidation and differentiation.

Since 2018, the slow decline in new home sales has marked the beginning of the "stock housing era," prompting a significant transition in the custom home furnishing sectorThe industry is evolving from a focus on single-category products toward a deeper integration of multiple categories across various spaces

This shift is aligned with trends toward standardization, regulation, and a heightened emphasis on qualityIn an environment characterized by vigorous competition, the Matthew Effect becomes more pronounced, with weaker players exiting the market, while top-tier companies consolidate their competitive advantages.

As of the second quarter of 2024, revenue from retail channels for companies like Oppein, ZB, and Golden Home has seen notable declines, reflecting overall softer market conditionsA significant drop in channel numbers across the board contrasts with select brands such as Tubao, which reported a 29% increase in revenue from decoration materials, signaling a divergence within the industryZB Home has continued its expansion efforts despite trying financial conditions, rapidly opening new stores even as revenue per store declines.

Facing unprecedented pressures, the custom home furnishing channel is evolving as companies adapt their marketing and promotional strategies

By promoting high-value products and offering enticing package deals, firms hope to support both distributors and consumers while maintaining a competitive edge in product offeringsAlthough individual product sales may have dipped slightly, the overarching strategy of bundling has led to an improved average transaction value.

Sophia's multi-brand collaborative strategy has proven effective, showcasing a 27% year-on-year increase in average transaction value, despite a contraction in store visibility for certain brandsThe figures highlight a balanced strategy of maintaining profitability while expanding market presence.

Looking ahead, recent announcements by the People's Bank of China and regulatory bodies promise financial support for the real estate sector, signifying a potential turning point for the housing market

High-profile cities such as Shenzhen and Shanghai have quickly followed suit, announcing plans to relax housing purchase restrictions and lower down payment thresholds, sending ripples of optimism through related industries.

As part of the crucial post-real estate supply chain, home furnishing stands to gain from this policy shiftRegional initiatives promoting trade-in programs for old furniture are being rolled out nationwide, with subsidies ranging from 15% to 20% on new purchases, including notable offerings for whole-home renovationsThe progressive implementation of these policies is expected to stimulate consumer spending significantly.

Additionally, the industry's growth momentum is bolstered by the approach of peak consumption seasons, where heightened promotional activities are likely to engage consumers further

Analysts believe that with the structural market shifts, there's a sound expectation of sustained demand, particularly as older properties enter refurbishment cycles, which are projected to surpass 50% of total real estate by 2030.

Underlining their commitment to shareholder value, Oppein Furniture recently set a remarkably ambitious profit distribution goal through cash dividends, illustrating management's confidence in future performanceFor 2024, they anticipate an estimated dividend yield of around 5%, which should alleviate market concerns about performance unpredictability.

Meanwhile, Sophia's strategy centers on performance-based employee ownership schemes with growth targets set against the backdrop of prior fiscal performance, reflecting a strong organizational emphasis on fostering growth amidst market uncertainties

This approach is critical as the company outlines achievable targets centered on revenue and profit growth, aiming for stability in what is becoming a highly volatile environment.

Amid all this, opportunities for growth remain plentiful, particularly as lower-tier cities exhibit slow brand penetration ratesA shift in consumer behavior is becoming apparent as younger generations increasingly favor experiences and brand engagements during their home renovation processesWith a growing middle-class demographic, consumer habits are evolving, combining low-to-high frequency consumption patterns that favor established brands to thrive in these markets.

In conclusion, as major firms like Oppein transition from a single product focus to a more holistic approach to home environments, their operational strategies reflect a larger trend in the industry

Strengthening product variety and supply for new buyers remains crucial, while navigating the complexities of competition without engaging in destabilizing price wars becomes a priority.

Sofia collaborates with strong home decoration enterprises nationwide and fosters distributor partnerships with local firms in smaller cities, cultivating mutual customer flows and synergistic growthTheir endeavors in bulk business serve various clients, leveraging connections across numerous commercial sectors, thereby enhancing revenue channels and optimizing sales structures.

As the market shifts toward older homes, established brands must adapt their traditional retail strategies to encompass complete renovation services effectivelyThe ability to offer comprehensive home solutions aligns with increasing consumer expectations, allowing firms such as Sofia and Oppein to maintain their competitive edge while also steering clear of further market fragmentation.

In recent years, both domestic and international markets have become focal points for growth, with brands like ZB, Golden, and Oppein reporting growth rates of approximately 30% in their foreign operations, indicating a promising horizon for the industry as a whole.