SEOUL, Dec. 28 (Korea Bizwire) – The South Korean furniture industry is going through a major transition to survive tough competition from Swedish furniture giant IKEA, which is drawing design-savvy consumers with affordable products and showroom displays.
IKEA’s highly anticipated first store in suburban Seoul has created much buzz in the home furnishing market, attracting over 6.7 million visitors and posting 308 billion (US$261.8 million) in sales since its launch a year ago.
Buoyed by the better-than-expected performance, IKEA is now on track to open five more stores by 2020.
Although the Scandinavian furniture maker’s initial success has served as a wake-up call, it has proven to not be a zero-sum game after all.
The craze surrounding the flat-packed self-assembling furniture has led to rising interest in the overall home furnishing market in Asia’s fourth-largest economy.
“Have you ever seen Korean furniture shops crowded like that? No doubt this is a big period of transition for the local furniture industry,” Kim Jung-bae, the owner of a small furniture shop in western Seoul, said.
“Of course, I’m worried about losing customers, but at least the long line at the IKEA store showed that there is strong demand in the home furnishing market.”
IKEA officials said its presence created a “win-win” situation for the nation’s home furnishing sector by stimulating more interest and “healthy competition.”
If you look at the numbers, it actually makes sense.
Industry leaders posted strong growth this year as they have moved beyond the usual retail practice of selling only products to stores adding value to customer’s shopping experience.
Hanssem Co., the nation’s No. 1 furniture maker which posted 1.3 trillion won sales in 2014, saw its revenue jump 17 percent in the first half of this year thanks to robust sales in kitchen interior items amid vibrant real estate market. Its stock prices on the Seoul bourse nearly doubled this year.’
Its smaller rivals, Hyundai Livart Co. and Enex Co., also posted double-digit growth in the first half on the back of expanded sales at their retail stores and online channels.
Years before IKEA’s entry, Korean companies aggressively increased the number of big concept stores in major cities, presenting showrooms and stepping up customer service for kitchen renovation and other home solutions.
“Major furniture companies have changed the way they do business and expanded stores in the wake of IKEA’s entry to the Korean market, which have been successful,” Kim Dong-sung, a spokesperson at Hanssem, said.
Market watchers say local companies have a competitive edge in easy store access, convenient delivery and customer service over IKEA’s out-of-town mega store, positively evaluating their expansion moves.
“The furniture and kitchen market showed robust growth in the business-to-consumer side, which means they need more stores for economies of scale,” said Lee Kyung-ja, an analyst at Korea Investment & Securities.
While IKEA’s store has the labyrinthine layout to induce customers to purchase items they did not intend, Korea’s multi-story shops feature different themes each floor for their convenience.
Unlike IKEA’s marketing strategy focused on its annual catalog and in-store experience, Korean companies are trying to expand online and mobile channels as part of the omni-channel retail strategy.
Over the past three years, 66.4 percent of furniture was sold in stores and 28.1 percent of transactions were online, which posted the fastest rise among all channels, according to a survey by the Korea Furniture Association.
Finding it hard to compete with IKEA’s low price tags, Korean furniture makers are trying to fill a niche by offering customized service for those who don’t want to endure the long check-out lines and frustration of assembling furniture at home.
“I prefer local furniture stores because shop assistants are more easily accessible and the atmosphere is a lot cozier,” Kwon Mi-kyung, a 32-year-old Seoul resident said. “Without a car, visiting the out-of-town store is not easy.”
Although the revenue from the single IKEA store now accounts for less than 1 percent of the Korean furniture market, small- and mid- sized businesses worry that IKEA’s expansion plan could potentially add more pressure down the road.
While large enterprises can up their game to capitalize on the rising consumer interest in home decoration, industry experts advise smaller businesses to take a different path to target the niche market.
Gyeonggi Research Institute said consumers who have visited IKEA store or bought its products have lowered their expectations for the brand, expecting more consumer complaints in the coming years and demands for durable products with unique design.
“A majority of consumers evaluated small- and mid- sized furniture makers as better at product durability, design and customer service,” the institute said in a report. “Independent businesses should focus on what they can do better than the standardized products sold at cheap prices to attract different types of customers.”