Entering the European market for handwoven rugs

The mid and high-end segments of the European market offer good opportunities for handwoven rugs, but competition is strong. You need to add value to your products through design, craftsmanship, sustainability, and storytelling. Entering the European market means you need to comply with the European Union’s legal requirements, as well as any additional or niche requirements your buyers may have. Banning child labour is an especially relevant issue in the handwoven rug industry.

1. What requirements must handwoven rugs comply with to be allowed on the European market?

The following requirements apply to handwoven rugs on the European market. For a more detailed overview, see our study on buyer requirements for HDHT.

What are mandatory requirements?

When exporting to Europe, you have to comply with the following legal requirements:

• General Product Safety Directive
• REACH
• Textile Regulation
• Packaging and packaging waste legislation

General Product Safety Directive

Europe’s General Product Safety Directive mandates all products marketed in Europe to be safe to use. It provides a framework for all legislation regarding specific products and issues. If there are no specific legal requirements established for your product and its use, the General Product Safety Directive still applies. If specific requirements do apply, the Directive applies in addition to those, covering other safety aspects that may not have been described specifically.

Unsafe products are rejected at the European border or withdrawn from the market. The European Union has introduced a rapid alert system (RAPEX) to list such products.

Restricted chemicals: REACH

The REACH regulation (EC 1907/2006) lists restricted chemicals in products that are marketed in Europe. For example, REACH restricts the use of azo dyes in textile products. If you dye your rugs or their materials, make sure you do not use certain azo dyes that release any of the 22 prohibited aromatic amines. Be aware that the legislation lists the aromatic amines, not the azo dyes that release them.

In addition, REACH restricts the use of certain flame retardants in textiles. These include Tris (2.3 dibromopropyl) phosphate (TRIS), Tris (aziridinyl) phosphine oxide (TEPA) and polybrominated biphenyls (PBBs). These are prohibited in products intended to come into contact with the skin.

In October 2018, the European Commission announced new limits for 33 CMR substances (substances that are carcinogenic, mutagenic or toxic for reproduction). These limits will apply per 1 November 2020 and affect textiles such as rugs and carpets. They are listed in entry 72 of Annex XVII and include substances such as formaldehyde, heavy metals, and benzenes. In general, the maximum concentration is 1 mg/kg, but there are exceptions.

Textile Regulation

The European Textile Regulation states that textile products need to be labelled or marked. Its purpose is to make sure that consumers within the European Union know what they are buying. The regulation applies to all products that contain at least 80% (by weight) of textile fibres. It requires textile products to have a label that states the full fibre composition of the product and, if applicable, the presence of non-textile parts of animal origin. The label should be durable, easily legible, visible, and accessible. It should also be printed in all the official national languages of the European countries the product is sold in.

There is no European Union-wide legislation on the use of symbols for washing instructions and other care aspects of textile articles. Because consumers do consider care instructions to be important information on a product label, you are advised to follow the ISO 3758: 2012 standards on the care labelling code using symbols for textiles.

Packaging

Europe has specific packaging and packaging waste legislation. EU Directive 2015/720 was adopted to harmonise measures concerning the management of packaging and packaging waste and to prevent or reduce its impact on the environment at European level. Buyers may therefore request you to minimise the use of packaging materials (paper, carton, plastic) or to use a different kind of material, possibly recycled.

Europe also has requirements for wood packaging materials (WPM) used for transport, such as:

• packing cases
• boxes
• crates
• drums
• pallets
• box pallets
• dunnage

All wood packaging material and dunnage from non-European Union countries must be:

• either heat treated or fumigated in line with ISPM15 procedures;
• officially marked with the ISPM15 stamp consisting of three codes (country, producer, and measure applied) and the IPPC logo;
• debarked.

These requirements do not apply to:

• wood 6 mm thick or less;
• wood packaging material made entirely from processed wood produced using glue, heat and pressure, such as plywood, oriented strand board, and veneer;
• wood packaging material used in trade within the European Union.

The objective of this Directive is to prevent organisms that are harmful to plants or plant products from being introduced into and spreading within the European Union. It also regulates imports from third countries in line with international plant health standards. Keep this in mind when you decide on the packaging of your handwoven rugs.

What additional requirements do buyers often have?

Sustainability

Adopting social and environmental sustainability practices makes your products stand out in the European market. Think of sustainable raw materials and production processes, as well as the impact your company has on the environment, the well-being of workers and society as a whole. Buyers appreciate good storytelling to create an emotional connection with their customers.

An increasing number of European buyers now require the following certification schemes:

• Business Social Compliance Initiative (BSCI): European retailers developed this initiative to improve social conditions in sourcing countries. They expect their suppliers to comply with the BSCI Code of Conduct. To prove compliance, the importer can request an audit of your production process. Once a company is audited, it is included in a database for all BSCI participants.
• Ethical Trading Initiative (ETI): This initiative is an alliance of companies, trade unions, and voluntary organisations that aims to improve the working lives of people across the globe that make or grow consumer products.

You can use standards such as ISO 14001 and SA 8000 to read up on sustainable options. However, only niche market buyers demand compliance with these particular standards.

In the home textiles industry, organic cotton is becoming an increasingly popular sustainable option. You can obtain certification from the Global Organic Textile Standard (GOTS). The easiest way to use certified organic cotton is by either sourcing certified yarn or, if you do not weave yourself, certified organic cotton fabric.

A recent study by the International Trade Centre concluded that, irrespective of the product, retailers in the major European markets are putting more environmentally and socially sustainable products on their shelves simply because consumers ask for it. According to the survey, 98.5% of retailers consider sustainability as a factor in their product sourcing decisions.

Labelling

The information on the outer packaging of handwoven rugs should correspond to the packing list sent to the importer. The external packaging labels should include:

• producer name
• consignee name
• quantity
• size
• volume
• caution signs

The most important information on the product labels of handwoven rugs is composition, size, origin, and care labelling. Your buyer will further specify what information they need on the product labels or on the item itself, such as logos or ‘made in’ information. This is part of the order specifications. It is common in Europe to use EAN or barcodes on the product label. Labelling should be in English, unless your buyer indicates otherwise. For more information, please refer to the labelling-specific rules under the Textile Regulation.

Packaging

Importer specifications

You should pack handwoven rugs according to the importer’s instructions. They have their own specific requirements for the use of packaging materials, filling boxes, palletisation, and stowing containers. Always ask for the importer’s order specifications, which are part of the purchase order.

Damage prevention

Handwoven rugs are transported as rolls, wrapped in plastic film, and jute or hessian sacking. They are rolled up with the face inside and packaged before they are put into a container. Sometimes two rugs are rolled up together, but this may make the roll too heavy. Runners are often protected with hardboard disks at the ends, to stop them from slipping and telescoping. When in doubt, check the requirements with your buyer.

Rugs must not be handled with bag or plate hooks as the film packaging can easily be torn. A carpet carrying mandrel should be used for handling rolled rugs.

Material

Importers are increasingly banning wooden crating and packaging due to their unsustainability and high material and disposal costs. Economical and sustainable packaging materials are more popular. Using biodegradable packing materials can be a market opportunity. For some buyers, it can even be a requirement.

Payment and delivery terms

Payment terms are usually agreed upon with the buyer in the order contract. They vary from buyer to buyer and are related to the volume and value of the order, the type of distribution partner, whether or not an agent is involved, and what delivery terms apply.

Delivery terms, officially known as Incoterms, depend on the type of distribution partner and their preferences regarding physical distribution. Importers generally prefer free on board (FOB) or free carrier (FCA) arrangements.

FOB is restricted to goods transported by sea or inland waterway. It means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. FCA can be used for any transportation mode. In this type of arrangement, the seller fulfils his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the specified place or point.

Retail multiples can ask for cost insurance freight (CIF). That means that they will ask you to include the shipping and insurance charges in your quote. Small retailers may go a step further and ask you to arrange that the goods be delivered to their doorstep via a delivered duty paid (DDP) arrangement. For importers that consolidate orders in your country, ex works (EXW) terms are often best.

What are the requirements for niche markets?

Ethical rugs and carpets

Several ethical initiatives focus specifically on the carpet industry:

• GoodWeave (formerly known as Rugmark) works to end child labour in the carpet industry in South Asia. You can search retailers per country for an indication of the relevance in your target market.
• Care & Fair aims to combat illegal child labour and improve the situation of carpet knotting families in India, Nepal, and Pakistan. Care & Fair has approximately 400 members in 21 consumer countries.
• Label STEP is present in the Swiss, Austrian, French, and German markets. Key issues are working and living conditions of carpet weavers and the fight against child labour.

Fair trade

The concept of fair trade supports fair pricing and improved social conditions for producers and their communities. Especially when the production of your products is labour intensive, like with handwoven rugs, fair-trade certification can give you a competitive advantage. Common fair-trade certifications include those from the World Fair Trade Organisation (WFTO) and Fair For Life.

Sustainable textile certification

While sustainability is gaining ground, the actual use of certifications is still not common in this sector, apart from organic certifications that are becoming widespread. As this is a means of demonstrating sustainability, there is increasing interest from buyers.

Several eco-labels used for textiles:

• The Global Organic Textile Standard (GOTS) is a textile-processing standard for organic fibres. It ensures environmental and social responsibility throughout the production chain of textile products.
• OEKO-TEX Standard 100 certification guarantees that no hazardous chemicals are used in the production of textiles. It provides textile and clothing companies with more transparent supplier relationships and facilitates the flow of information regarding potentially problematic substances.
• The European Union’s Ecolabel seeks to minimise products’ environmental impact by looking at the use of environmentally friendly chemical options. The label is awarded only to products with the lowest environmental impact in a product range.
• The voluntary Nordic Swan eco-label is used in Sweden, Norway, Finland, Denmark, and Iceland for textile products.

Woolmark

Woolmark certification provides consumers with guaranteed wool fibre content and an assurance of quality. It contains specific standards for several product groups, including handwoven rugs.

2. Through what channels can you get handwoven rugs on the European market?

The handwoven rug market is segmented into low, mid and high-end (premium) market segments. The rugs are put on the market through the traditional channels: importers and wholesalers that supply to retailers, as well as retailers that buy directly from suppliers.

How is the end market segmented?

Figure 1: Handwoven rug market segmentation in Europe

Low-end market

In the low-end segment, simple and low-priced rugs are common. They are usually small sized and made of inexpensive materials. Products from India, Pakistan and Bangladesh generally dominate this market. Competing with these cheap and relatively mass-produced small rugs is almost impossible. Instead, the higher middle and lower high segments offer you the most opportunities.

Mid-end market

The middle segment puts more emphasis on design and finish, while prices are still reasonable. The mid-high market responds well to local character, identity, and craftsmanship. Sustainability is increasingly important to consumers in this segment. This makes the use of natural and recycled materials for your rugs an interesting option, as well as natural dyes.

High-end or premium market

In the high-end segment, designer quality is common and private labels are the standard. Products for this market are relatively timeless. They can also be made with high-end materials, such as silk, cashmere, other high-quality wool, and blends of these fibres.

Through what channels do handwoven rugs end up on the end-market?

Traditionally, the trade channels for carpets and rugs were separate from other home textile products. However, these items have now established themselves in the mainstream trade channels and have become lifestyle products. Whereas top class kilims were previously only sold in speciality shops, they are now available at department stores. Large retail chains like Ikea now also sell rugs and carpets, handmade or not.

This means the channels through which handwoven rugs are put on the market now also follow the traditional patterns: import takes place via importers or wholesalers that supply to retailers. Larger retail chains often bypass the importers and wholesalers and import themselves, while more and more smaller retailers have also started buying directly from suppliers. In some cases, buying agents play a role. We highlight below the main actors in the market for handwoven rugs.

Importers and wholesalers

Importers and wholesalers sell products to retailers in their own country or region, or re-export to the broader European continent. Some European markets are therefore supplied by wholesalers and importers from other European countries (intra-European trade). Supplying to buyers in the target market can be considered as a secondary distribution flow for European importing wholesalers.

These importers and wholesalers take care of the importation procedures. They take ownership of the goods when they buy from an exporter (as opposed to agents), taking the risk of the onward sale of the products. Developing a long-term relationship can lead to a high level of cooperation on appropriate designs for the market, new trends, use of materials, type of finishing, and quality requirements.

Importing retailers

Some retailers, especially the larger chains, import directly from their suppliers in developing countries. Many large retail chains even have their own buying offices in developing countries. Others, mainly the smaller independent stores, order in Europe from wholesalers.

Retailers come in many sizes: large and part of a chain, or small and independent. There is a tendency for consolidation in European retail, with large retail brands becoming more spread out over Europe and becoming more lifestyle-centred, offering home decoration and textiles as well as fashion accessories and furniture.

Buying agents

Buying agents do not import, but they represent European buyers in the sourcing country. Sometimes, agents have a more limited role, for example, checking the quality of the shipments in your warehouse on behalf of a specific importer, or checking the codes of conduct that exporters agreed with the buyer. Agents can work individually or as part of purchasing companies. They mostly act on the base of commission.

E-commerce

E-commerce in the HDHT sector is growing and can help you reach a broader range of customers. Retailers often combine online and offline channels. Consumers research and purchase products online, shopping around and comparing prices on HDHT items. To supply to e-commerce, you must offer small batches, fast delivery, and be able to work with individual packing and labelling.

Figure 2: Trade channels for handwoven rugs in Europe

What is the most interesting channel for you?

Wholesale importers are the main channel between exporters in developing countries and European retailers. They are interesting if you want to develop a long-term relationship and they usually have good knowledge of the European market. They can provide you with valuable information and guidance on European market preferences and will normally provide you with design input.

However, as the market is becoming more and more competitive, large retailers are increasingly importing for themselves instead of through European wholesale importers. The obvious advantages are cutting out the margins of the wholesaler and reducing delivery time to the market. In the lower-end market segments, self-importing retailers might want to drive a much harder bargain with you. However, in the higher middle segment, which offers you the most opportunities, price is less of an issue.

Smaller, independent European retailers continue to purchase mainly from domestic wholesalers and importers. As in other European market sectors (such as food or clothing), independent HDHT retailers struggle to compete with retail chains. They need to differentiate on value-added service, as well as specialised assortment and authenticity. They typically prefer small order quantities per item, small total order volumes and delivery to their doorstep, with a limited likelihood of repeat orders. You need to calculate if this is cost-effective for you.

The trend of direct sourcing is expected to continue in the future and may create more opportunities for you. The pool of buyers may increase if more retailers become importers, possibly resulting in an improvement of your bargaining position. Importing retailers order for their own shops and can therefore place orders much more quickly than some importers and wholesalers, who first need to show samples to their retailers before exporters receive their orders.

3. What competition do you face on the European handwoven rug market?

The COVID-19 pandemic and the measures taken against it worldwide are having a large impact on international trade and the European market for many products and services, including home decoration and home textiles (HDHT). Please note that the below analysis is based on the statistics that are currently available (2015–2019). Therefore, the expected impact of the pandemic on the European market and global supply chains have not been taken into account in this report. For the latest news in your sector, please check CBI News.

India is by far the main handwoven rugs supplier to Europe, providing 61% of the EU’s total imports. Germany (16%) and Pakistan (10%) follow at a distance. Denmark (9%), Iran (8%) and Turkey (6%) are next on the list.

However, different countries have different roles in the European market. You can make a rough distinction between countries that are mainly importers and countries that are mainly manufacturers. Most Western European importers do not just sell their products in their own country, but across Europe. This explains why in HDHT, small countries like Denmark and the Netherlands often import much more than the demand in their own domestic markets.

European production mainly takes place in Eastern European countries. This is mostly because of their closeness to the Western European markets and their relatively low labour costs. This sometimes makes them a good alternative for sourcing from the Far East. In general, Western European countries are mainly re-exporters, Far Eastern countries are the manufactures, and Eastern European countries are the new manufacturers. Western European countries could therefore be interesting trading partners for you.

Which countries are you competing with?

India dominates the market

As discussed, India is Europe’s main supplier of handwoven rugs. With a share of almost two-thirds, India dominates the market. Its skilled labour and transportation at competitive costs give India a strong position in the European market.

India has a long history of carpet and rug production. The town of Bhadohi is also known as Carpet City, home to one of the largest handwoven carpet industries in South Asia. Indian producers have easy access to a variety of natural materials and specialise in craftmanship. This allows them to target the mid- to high-end market segments, where handwoven rugs are mainly sold. These strengths make the country a fierce competitor in the market for handwoven rugs.

Pakistan has a strong tradition in handwoven rug production

Handwoven rug production is one of Pakistan’s leading small-scale and cottage industries, allowing weavers (often women) to work from their homes. The rugs come in various designs, styles, and materials, and have been exported to Europe for centuries.

Pakistan has a large workforce and low wages. It is one of the world’s leading cotton producers, with a large spinning capacity to produce textile products. This gives Pakistan a clear competitive edge in the production of cotton rugs. To compete with Pakistani suppliers, you can differentiate by using other natural or recycled materials, or high-end materials, such as silk and high-quality wool and wool blends.

Iran is known for its Persian rugs

Iran has a strong reputation in handmade rug production. When Westerners think of Persian rugs, they obviously think of Iran. The craft is so important to Iranian culture, that UNESCO has recognised the traditional skills of carpet weaving in Fars as intangible cultural heritage. Although these rugs are traditionally made of wool, materials such as cotton and silk (or blends) can also be used.

In 2019, Germany, France, and the United Kingdom launched an Instrument In Support Of Trade Exchanges (INSTEX) to facilitate trade with Iran. This system is intended to help European businesses trade with Iran, despite the current sanctions that the United States have imposed on the country.

Turkey specialises in kilim production

Turkey is another country with a long tradition in producing rugs, especially kilim, and particularly in the Anatolian region. In addition to its expertise in handwoven rug production, the country’s strengths include its relatively low wages and its location close to Europe, which make manufacturing locations in Turkey particularly cost competitive.

Morocco shows steady growth

Like most other leading suppliers, Morocco has strong rug weaving traditions. Berber rugs are among the best-known types of rugs traditionally produced there. Morocco is the only leading supplier that managed to steadily increase its exports of handwoven rugs, from €0.5 million in 2015 to €1.2 million in 2019. Because these values are relatively modest, this resulted in an average annual growth rate of 21%. Almost half of Morocco’s handwoven rug exports are destined for France, a well-known trade partner of Morocco.

China is a relatively small player

In general, Chinese producers mainly supply the lower ends of the market with low-priced products, as product development and creativity are not their core strengths. This explains why China is a relatively small player in the market of handwoven rugs, which are not suited to China’s usual mass-production strategy. In the coming years, disruptions following China’s trade war with the United States and the COVID-19 pandemic may negatively impact the country’s trade performance.

Which companies are you competing with?

Sharda – India

The Indian manufacturer Sharda is known for its wide variety of techniques, all by hand, and its materials. One of the company’s strong points is the fact that they have an in-house design department that allows them to offer a wide range of different designs, as well as the possibility to develop customised products for their buyers.

In addition to business-to-business (B2B) sales, to further capitalise on its wide range of rugs, the company has created The Rug Republic, offering handmade rugs from stock on a business-to-consumer (B2C) level.

Kirkit Rugs – Turkey

Kirkit Rugs offers restored vintage or antique rugs, contemporary rugs, and kilim. These categories have their roots in the traditional rug weaving from Anatolia, a region in Turkey that is well known for its handmade rugs. As such, the heritage aspect of Kirkit’s products plays a major role. The company uses this as an important part of its promotion and storytelling.

IKEA - Sweden

Even though IKEA as a company is one of the biggest players in HDHT worldwide, their approach towards handwoven rugs is quite similar to some of your other competitors in this field. You can take inspiration from the way in which the sourcing of raw materials is described, as well as the production process itself and the photography of both product and production. The company aims to make all the wool they use for their handwoven rugs to be 100% responsibly sourced wool by 2025.

Which products are you competing with?

Handwoven rugs mainly compete with their industrially produced, machine-made counterparts. Their main quality is decorativeness, provided by the designs, patterns, materials and techniques used to make them. The handmade aspect further adds to the story behind the rugs. All these characteristics bring additional value and uniqueness to these products, making them more interesting for European consumers. However, if a consumer mainly needs a functional, standard rug, then these handwoven pieces can’t compete with cheap mass production.

4. What are the prices for handwoven rugs on the European market?

Prices for handwoven rugs vary across market segments, ranging from low end to high end. After adding logistics costs, wholesaler, retail margins. and VAT, European consumer prices amount to 4–6.5 times your selling price.

Table 1 gives an overview of the indicative prices of handwoven rugs in the low, mid and high-end market segments. ‘Indicative’ is key here, since prices for handwoven rugs vary depending on weaving technique, size, material, design, brand, and other ways of value addition. Size is especially relevant, since differences in size directly influence the price.

Table 1: Indicative consumer prices of handwoven rugs in Europe

	Low-end	Mid-end	High-end or premium
Handwoven rugs (120x180cm)	€5*–€50	€50–€200	€200 or more

* small size 60 cm x 90 cm

Consumer prices depend on the value perception of your product in a particular segment. This is influenced by your marketing mix:

• product benefits
• promotion (brand or not, communication of product benefits)
• points of sale (reseller positioning)
• price

As mentioned above, the European consumer price of your rugs is 4–6.5 times your selling (FOB) price. Besides energy, labour and transport costs, FOB prices depend heavily on the availability and cost of raw materials. For example, in recent years the price of wool has increased considerably, largely due to renewed demand from China. Occasional increases in the price of raw materials are not directly passed on to the consumer, but do put pressure on exporters, importers and retailers’ margins.

The following percentages give an indication of a price breakdown for handwoven rugs in the supply chain:

• shipping, import, handling costs: +15%–20%
• wholesaler: +50%–90%
• retail: +90%–150%
• VAT*: +20%

*VAT percentages in Europe range from 18% in Malta to 27% in Sweden. On average, these percentages are approximately 20%.

For example, in Table 2 the FOB price is set at €10. Depending on the market segment your product is designed for, the consumer price ranges from €41 in the low-end market, to €65.50 in the high-end market.

Table 2: Example of the price breakdown per market segment

	Low margin	Middle margin	High margin
FOB price	€10.00	€10.00	€10.00	Your FOB price
Transport, handling charges, transport insurance, banking services (20%, 15%, 15%)	+2.00 €12.00	+1.50 €11.50	+1.50 €11.50	Landed price for the wholesale importer
Wholesalers’ margins (50%, 75%, 90%)	+6.00 €18.00	+8.60 €20.10	+10.40 €21.90	Selling price from the wholesale importer to the retailer
Retailers' margins (90%, 110%, 150%)	+16.20 €34.20	+22.20 €42.30	+32.70 €54.60	Selling price excluding VAT from the retailer to the end consumer
Selling price incl. VAT (20%)	+6.80 €41.00	+8.50 €50.80	+10.90 €65.50	Selling price including VAT from the retailer to the end consumer

Examples of handwoven rug prices across Europe:

• Recycled cotton rug, 60 cm x90 cm, John Lewis (United Kingdom): €14.50
• Care & Fair certified rug, 200 cm diameter, Kwantum (Netherlands): €100
• Woollen rug with geometric pattern, 170 cm x 240 cm, Ikea: €220
• Designer rug by Margrethe Odgaard, 170 cm x 240 cm, Muuto (Denmark): €1,000 (approx.)

This study has been carried out on behalf of CBI by Globally Cool B.V. in collaboration with Remco Kemper.

Please review our market information disclaimer.