Photo/Shetuwang

Jan.26 (NBD) -- In 2016, China's furniture exporting sector suffered a negative growth for the first time in 7 years and turned to a better performance in 2017.

However, industry insiders told NBD that the country's furniture exporting enterprises are seeing narrowing profit margin.

Profit margin of OEM is low: industry insiders

According to a report on China's furniture industry released on Wednesday, furniture enterprises above designated size reaped a revenue of 828.1 billion yuan (129.4 billion U.S. dollars) in the first eleven months in 2017, up 10.24 percent year on year. During the same period, export value of all enterprises above designated size totaled 46.4 billion U.S. dollars, up 5.29 percent year on year.

However, the sector is struggling to make continuous headways. Qin Xu, a project manager of the HK-based home goods retailer LESSO HOME told NBD in an interview that actually most furniture exporters in China are OEM furniture suppliers. For them, the profit margin is slim. However, if they do not accept OEM, they can hardly receive orders.

Increasing labor costs, coupled with stricter quality inspection, drags net profits down further. NBD noticed that European, US, Japan are major export destinations for furniture made in China. However, the market is increasingly taken away by exporters with lower costs in Southeast Asia, for example, Vietnam.

Export costs rise due to trade barriers

Early this year, the multinational furniture maker Lacquer Craft' factory in Dong Guan, Guangzhou was reported to stop making any products from February First. Guo Huishan, board director of Lacquer Craft, explained in a news briefing that the factory is shut down due to smart manufacturing reforms. After being upgraded, the Dong Guan factory will turn to target the domestic market instead of overseas markets.

The price of raw materials kept climbing in 2017, which further narrowed furniture makers' net profits. In addition, lacking of knowledge about foreign markets is another important factor that hampers internationalization success, Qin added.

Qin also noted that the transparency in China's furniture market allows overseas buyers know better about the cost of moulds, imported oil paint and other materials, which further squeezes the profit margin for OEM suppliers.

Qin added that influence of domestic brands remained limited due to the lack of marketing channels. As a result, the furniture manufacturers shoulder the least profitable part which is the manufacturing process, whereas the overseas purchasing agents take the most lucrative parts which include marketing, sales, advertising and packaging.

According to the 2017 semi-annual report of Yihua, an export-oriented furniture manufacturer with independent brands, Chinese exported furniture have dealt a blow to foreign rivals with quality products at reasonable price, hence raised trade barriers in those countries, which will increase the export costs.

Email: tanyuhan@nbd.com.cn