This year during National Day, the home furnishing store in Shenzhen was bustling with activity, thanks to numerous promotions that drove the store's performance to new heights. For a brief moment, the store was thriving. However, following this short-lived boom, the home market quickly reverted to its desolate state. In a recent interview, I learned from sources that the ongoing impact of property market regulation policies has left approximately two-thirds of building materials merchants in Shenzhen operating at a loss this year. Weitao Enterprises, in particular, has suffered the most significant losses. Is this a harsh winter for the industry, or is it simply a time of clearing stock and strategic redirection? How businesses should respond has become a pressing concern for those in the building materials sector.
Promotions Drive Sales Performance
According to reports, during the National Day Golden Week, all major home building materials stores in Shenzhen held promotional events, which indeed led to an improvement in sales performance. For instance, the four stores of Shenzhen Yeye Home Furnishings saw total sales surpassing 20 million yuan during the National Day promotions, marking an 18% year-on-year increase. Notably, the Expo store experienced a 30% year-on-year growth, while the flagship store recorded sales of 1.5 million yuan on October 7th.
"I want to run promotions in my store, but I'm scared to do them!" Boss Chen, a home furnishing supplier, confided to me.
Why is this the case? Boss Chen explained that while store promotions can draw in a lot of foot traffic and boost sales, the discounts often come at a cost. Most of the discounts are ultimately borne by the merchants leasing space in the store.
Boss Chen’s mixed feelings about store promotions reflect the sentiment shared by many home furnishing merchants currently operating within stores.
"We're losing money when we sell more, and losing more when we sell less!" Mr. Sun, a sales manager for Weitao products, told reporters. He mentioned that during the National Day Golden Week promotions, the store required merchants to offer special products to attract buyers. Mr. Sun's company introduced a special deal on "399 yuan brand toilets." "Our toilet costs only 580 yuan, excluding site rent and labor costs. Selling at 399 yuan means nearly a loss per unit," Mr. Sun said with a wry smile.
Weitao Enterprises Suffered the Most
Due to property market regulations, the home building materials market has been stagnant for two years, causing distress for most manufacturers. Among these, companies producing sanitary ware ceramics have been hit the hardest.
Weitao products have always been seen as a barometer of the building materials market. According to Mr. Jiang, a manufacturer, "Bathroom ceramic products are always displayed in the prime locations within the building materials market, where rents are relatively high." Besides the losses incurred by Weitao products, other dealers such as cabinets, flooring, and sliding doors have also slowed their store openings this year. Some existing dealers have even decided to withdraw. Mr. Jiang explained that for building materials dealers, the cost of opening a new store includes装修(decoration), rent, staff, and other expenses, which can amount to at least 500,000 to 1.5 million yuan. Rising labor costs have rapidly eaten into industry profits, with average profit margins across multiple building materials sectors falling by at least 15%.
The reporter learned from various markets and merchants that approximately two-thirds of building materials merchants are operating at a loss this year, mostly smaller merchants. Mr. Li, a local manufacturer of small and medium-sized sanitary ware, told reporters that the building materials industry has been cold for two years. When small merchants face poor market conditions, unlike larger ones that enjoy substantial support, they are more likely to struggle financially. "Clearing inventory in the second half of the year and switching to another business might be necessary. The market competition in the industry is too fierce, and I’m not optimistic about the future. It’s better to pull back now and avoid greater losses," Mr. Li said.
Industry Restructuring or a Shift in Strategy
In recent years, the entire home furnishing industry has been sluggish, and most industry insiders blame the continuous tightening of property market regulation policies. They argue that the sluggish property market has dragged down the downstream home building materials industry.
However, since March this year, the Shenzhen property market has shown signs of recovery. The gradual recovery of the property market may bring a turning point to the home building materials industry. Wu Haiguo, the sales manager of Jinhaima, told reporters that the sales situation at the Luohu store in Shenzhen Jinhaima home store in October was positive, particularly for high-performance rigid-demand products.
The hot sales of rigid-demand homes are closely tied to the strong sales of rigid-demand products in the property market. It is understood that there are two main consumer groups in the home market today: those purchasing homes for improvement and younger buyers purchasing their first homes. Most of these consumers buy smaller homes. Currently, the majority of properties on the Shenzhen market cater to rigid demand. "These newly needed properties won’t remain unsold for long, and the demand for household goods will heat up further," Wu Haiguo added.
"Although the overall industry performance remains somewhat bleak, partly due to the rapid expansion in recent years, the current crisis also creates opportunities for industry restructuring. Therefore, market expectations may not be as pessimistic as they seem," Wu Haiguo concluded.
Wu Jin, from Jinhaima, isn't the only one optimistic about the future. During interviews, the reporter learned from the management of the Century and Baianju Shenzhen stores that while the home furnishing market remains challenging this year, the situation has improved compared to last year. "We remain hopeful for next year's market!" said the relevant manager of the Century store.
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