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German furniture industry: a tale of two sectors

Article | 23 Feb 2010

Last month, the Imm Cologne Exhibition brought together players from 51 countries to
display furniture, mix with cronies and contemplate the coming year. But despite the
international assemblage, the topic that transfixed many was the dichotomy being
played out in the German furniture market by manufacturers and retailers who, as they
emerged from the cavernous Koelnmesse, made it clear that they had two very
different visions of the coming year's prospects. Retailers, on the one hand, contended
that while 2010 will not be the best of times, it certainly will not be the worst.
However manufacturers saw it quite differently, bemoaning the fact that for many the
coming year may indeed be the worst in decades, leaving some to wonder how they
will survive.
The cautious optimism expressed by German retailers is based in part on 2009 sales,
which were sluggish but which nevertheless registered growth by the end of the year,
however slight. Among other tactics, retailers lured wary consumers into their stores
by showcasing more lines of less expensive imported furniture, and there was good
response from German consumers. Preparing for the autumn sales season - traditionally
the peak season for buying furniture in Germany - retailers are reasonably confident
that imports will again keep them from financial peril.
Many retailers attending Imm Cologne also reported being encouraged by the recent
spate of new store openings. IKEA, for example, opened its 45th German outlet in
Wrzburg just last June. This was followed soon after by the opening of Austrian giant
XXXLutz's new store in Aschheim, Bavaria which, in turn, was followed by the August
opening of the new Hffner store in Leipzig. Adding to the positive buzz were
announcements of more new store openings coming soon in Lbeck, Hamburg and
Berlin.
Manufacturers ponder gloomy 2010
Manufacturers, meanwhile, find themselves looking at a season of darkness as
consumers continue to resist increasingly expensive German-made furniture. Faced
with rising costs of raw materials, labour and energy, they have little flexibility and few
weapons to keep prices down, opening the door even wider for low-cost imports. To
add to their woes, foreign demand, once considered dependable "back-up" in volatile
times, has slipped significantly as consumers in the Netherlands, France and Austria
opt for less-expensive alternatives. By the end of Imm Cologne, the best 2010 sales
forecast that Dirk-Uwe Klaas, chief executive of the Association of the German
Furniture Industry, could muster for manufacturers was so far-ranging - anything
between a negative 3% and a positive 3% - that it offered little solace.
In the short term, to ensure growth German manufacturers must resuscitate demand in
their export markets, boosting marketing efforts so that, in the words of Dirk-Uwe
Klaas, "Made in Germany" resonates in the global furniture industry as strongly as it

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does in the global automobile industry. However, German manufacturers will not be
able to avoid addressing long-term strategic issues and, as they find themselves
perched precariously on the same crowded limb as many slumping US manufacturers,
they might be wise to look to debates and deliberations in the US furniture sector for
guidance. For example, new strategic models and tactical shifts that might
successfully be adopted by German manufacturers include the new focus on competing
on quality and customization rather than on price; broadening distribution options, in
particular, developing effective online distribution channels; and improving product
delivery, turning superior logistics skills into a competitive advantage.
For further insight, please contact Utku Tansel, Head of Housewares and Home
Furnishings Research at Euromonitor International on utku.tansel@euromonitor.com

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