Russia’s furniture market slump

Text: Dmitry Brusentsov, head of Analytics, Express Obzor

According to preliminary estimates, the Russian furniture market shrank 24.6% year-on-year in volume terms in 2015 due to the country’s economic recession. Sales fell across all types of furniture. The greatest drop in the household furniture segment was seen in upholstered furniture, which has the largest market share. Compared to 2014, only the office furniture market experienced a decline.

The household furniture and office furniture markets fell 24.4% and 25.2% respectively. In fact the market share for office furniture has been declining since 2012. In 2012, this segment accounted for 23.2% of the Russian furniture market; by the end of 2015, its share had dropped to 18%.

Due to the increased cost of raw materials and components, the devaluation of the Ruble, and the resulting increase in import prices, the average producer (and importer) price in Russia rose 34% YoY to over 4,000 Rubles in 2015. As a result, the size of the furniture market only grew 1.5% in value terms.

Consumer behaviour also changed due to the economic recession. According to the Russian Public Opinion Research Center (VTsIOM), the percentage of buyers of cheap furniture increased from 22% in January to 39% in September. Consumers also bought less furniture or stopped buying all together.

Despite a sharp rise in the cost of furniture manufacturing, consumer prices only went up 13.5% due to a shift in demand for cheaper furniture. According to analysts at Express Obzor, household furniture sales slowed down dramatically; the growth rate also did not exceed +1% against the 2014 level.

Given the dynamics of the average consumer prices, the trend indicates a considerable decrease in sales in volume terms. Dividing the total value of retail sales by the average consumer prices will give us sales in volume terms. This means that in 2015, 20.3 million units of furniture were sold, while in 2013 this figure was 22.9 million units (-11.3%).

The structure of retail sales of household furniture by region did not change considerably. As usual, the largest number of furniture sold was in the Central Federal District, accounting for 40.1% of total retail sales according to provisional results for 2015. This is followed by the Volga Federal District (13.9%) and the Ural Federal District (10.5%).

Fall in furniture output 

Based on data up to November 2015, the volume of Russia’s furniture output showed a 6.1% decrease. This was mainly due to the fall in output of office furniture (-18.6%), mattresses and mattress foundations (-16.1%), and upholstered furniture (-8.5%).

In 2015, the average producer prices for furniture increased by 18.4% from 2014 when the growth rate was +12.4%. This is the largest increase since 2010. According to estimates by Express Obzor, in addition to the increased cost of imported accessories due to the devaluation, the price hike was also due to the Technical Regulation of the Customs Union ‘On Safety of Furniture Products’, which came into effect on July 1, 2014. This regulation sets the permissible limit for formaldehyde emissions at 0.01 mg/m3 (E0,5).  The greatest increase in prices (+44.1%) was seen in upholstered furniture as it is manufactured using a lot of imported accessories, followed by bedroom furniture (eg: beds and wardrobes), which uses a lot of wood-based panels. The growth of the average producer prices led to an 11.1% increase in the output of furniture in value terms.

Falling furniture exports and imports 

Furniture exports remained unchanged while exports declined at the rate of 0.04% (i.e. at the level of 2014 which saw a significant increase in supplies). The demand for Russian-made bedroom, kitchen and upholstered furniture increased, while the other furniture categories showed negative developments. Since exports of furniture remained at 2014 levels and output had fallen, the share of products intended for export continued to increase. At the end of 2015, exports accounted for 11.8% (+0.7 percentage points from 2014).

A decline in the Ruble/Dollar exchange rate last year resulted in a sharp increase in the cost of imported furniture and hence in a lower demand. Annualised imports fell 36.3% in volume terms and exports returned to the 2011 levels. The sharp drop caused a decrease in the share of imported goods in the Russian market, from 57.9% in 2014 to 48.1% in 2015.

The demand for cheaper furniture continues, with the exchange rate giving rise to nearly a two-fold increase in prices even for inexpensive furniture.

Furniture imports fell 42.6% in Dollar terms, while the average cost of imported products decreased by 8.4% to $51 per unit of furniture. The change in demand was also influenced by the reduction in customs duties on imported furniture after Russia joined the WTO. A major reduction was seen in the cheap furniture segment, worth less than EUR1.8 per kilo of gross weight. At the time of Russia’s accession to the WTO, the customs duty on this type of furniture was EUR0.75 per kilo of gross weight. By 2018, it will fall to EUR0.23.

The breakdown of furniture imports by country did not change, led by China, followed by the Republic of Belarus and Ukraine.

 

This article first appeared in Panels & Furniture Asia (May/June)