Through what channels can you get home textile products onto the European market?
The European market for home textiles offers excellent opportunities for you as a supplier from a developing country; especially the mid-high segment, where consumers are looking for good quality at a higher but affordable price. The nature of trade in home textiles remains volatile. Continuing globalisation results in players having to reposition themselves within the trade channel. Relatively new options include direct trade, co-supplying and working with smaller specialised retailers.
Figure 1: Segmentation of the home textiles market
High-end segment – luxury
This segment is characterised by luxury products of a high quality, often carrying an exclusive designer brand name. Most of these products are sold by interior specialists and department stores at high prices. European manufacturers mostly target this segment. They invest a lot in product development.
High-end products are relatively timeless. Materials such as silk and cashmere are used more frequently in this segment, although cotton remains the dominant material.
It is difficult for you to address this segment directly because of the fierce competition from European manufacturers and their established brand names. One option is to cooperate with a European manufacturer that outsources part of its production to a low-cost country.
Mid-high segment – value for money
The middle-high segment markets fashionable products of good quality at a higher but still affordable price. Products are trendsetting and often carry a brand name. They are mostly sold at department stores and independent retailers. This segment currently provides excellent opportunities for you.
Mid-low segment – value for money
For consumers in this segment, price is the determining factor for their purchase. They are looking for good, standard quality at the lowest possible price. There is a limited range of colours and designs available, as products are more standardised. Manufacturers of these products are trend followers; they copy existing designs and slightly adapt them. These products are mostly sold at variety stores.
Low-end – basic but fashionable or just cheap
Products in this segment are of a basic quality and are sold at a low price. Consumers in this segment often look for bargains, mostly at factory outlets and discount stores or at hypermarkets, supermarkets and street markets. Low-end products are standard and unfashionable and do not carry a brand name. When targeting this segment, it is difficult to compete with large Asian manufacturers who can efficiently produce these standardised products at competitive prices.
Dividing the middle market
The traditional middle market in the home textile sector has come under pressure in recent years. It has lost focus, lacks innovation and has not dared to connect with and invest in new suppliers. For European consumers, it is common to combine low- and high-priced home textile products in their homes.
As a result of these developments in the traditional middle segment, it has been divided into a mid-low and mid-high segment. To supply to the mid-low segment, you have to conform to the existing low-middle price structure. This fact means that you have to accept lower margins. In the mid-high segment, you have to focus on your special skills and fashionable designs, and tell the story behind your product (to create an experience or emotion).
There has also been an increasing demand for products from the lower market segments as a result of the economic crisis. Some consumers shifted from the mid-high to the mid-low segment. Some consumers in the high-end segment have turned from branded home textiles to mid-low retailers (but not low-end products), such as IKEA. Now that consumer confidence is recovering, consumers are trading up again. This development results in a growing demand for higher segments.
- Focus on the lower end of the market if you can compete with large producers from China, India, Pakistan or Bangladesh who benefit from economies of scale and well-organised logistics.
- The middle market can be a good option, but you need to choose between the mid-high and the mid-low segment.
Figure 2: Trade structure for home textiles
Rising production costs challenge European manufacturers, forcing them to assume the role of jobber/importer. The manufacturers look for low-cost sources that produce home textiles on a made-to-order basis. They often buy products in semi-finished form so as to finish the product in Europe according to their own design, quality and colour specifications.
You can try to work with some of these importing manufacturers as an outsourced supplier. Your role will be minor, because you will not be selling your own products to European retailers. However, you may regard this approach as a first step towards developing a relationship with a European manufacturer.
Further vertical integration within the chain will continue. European manufacturers outsource products directly from manufacturers in developing countries at the lowest possible cost and sell direct through their own retail outlets. This situation may result in more value addition by exporters such as you.
Agents are independent companies that negotiate on behalf of their clients and act as intermediaries between buyer and seller. They do not take ownership of the products or keep stock.
Buying agents are located in the supplying country and usually act on behalf of buyers. They fulfil an inspection role and act as communication intermediaries. Their commission (averaging at 15%) has to be added to the price.
Selling agents are located on the European market. They have good knowledge of the European market. If you have exclusive products or a designer collection, you could work with a selling agent. They charge commissions of 3–10%. However, the influence of agents is disappearing from the trade structure due to increased consolidation within the value chain.
You must carefully consider the disadvantages of working with agents. Under European legislation, agents (as opposed to importers/wholesalers) are very well protected. Once you engage with agents, it is very hard to bypass them and deal directly with your clients.
Importers and wholesalers
Importers and wholesalers sell products to retailers all over the world. 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 textile products. Developing a long-term relationship can lead to a high level of cooperation on appropriate designs for the market, new trends, use of fabrics, type of finishing and quality requirements.
Importers and wholesalers are interesting if you want to develop a long-term relationship. They usually have good knowledge of the European market and can supply you with valuable information and guidance on European market preferences. Please note that they often insist on a similar infrastructure on your side. Traditionally, importer and wholesaler margins range between 50% and 90% (Cost, Insurance and Freight, CIF).
Importing retailers are often larger retail organisations, chain stores with large numbers of outlets, department stores, buying groups or mail order/internet marketers with sufficient knowledge to buy directly. They are very demanding in terms of product standardisation, lead times and deliveries.
Importing retailers are increasingly integrating their suppliers in their value chain and selling internationally. They achieve this integration either by outsourcing production to selected manufacturers, who produce according to their specifications, or by importing through buying groups. Importing retailers place orders directly with manufacturers and provide their specifications to produce their own private labels. Otherwise, they may buy “off-the-shelf” items.
When trading directly with retailers, take into account the following:
- Selling price – when using traditional distribution channels, the Free On Board (FOB) price is around 20% of the consumer end price;
- Product development – wholesalers/importers often have a design department, implying that you produce a tailor-made product for them. When targeting a retailer, you must develop and design your own product range, and show that you can produce a certain product range. Especially larger importing retailers/chains can develop their own products with you to coordinate your product with their range and distinguish themselves from the competition;
- Logistics – you must meet the technical qualities within the agreed lead time.
Non-importing retailers are independent interior retailers and smaller retail chains buying indirectly from you through wholesalers, agents or domestic manufacturers. Many high-quality and exclusive home textiles are sold on by interior specialists and lifestyle stores. These specialists still represent a significant proportion of the distribution network in most European countries and could be the best channel for selling your product to a targeted consumer group.
However, some of the non-importing retailers have slowly become interested in buying directly from smaller producers as well, in order to distinguish their collection from the larger retail chains and create their own unique niche.
This “project market” includes governments, hospitals, nursing homes and other institutions that buy via tenders. Other types of organisations include offices, spas, hotels, restaurants, holiday resorts, sports and health centres. They mainly purchase bed, bathroom and kitchen linen from specialist wholesalers.
This segment is likely to grow in the near future due to:
- An ageing population, resulting in more sheltered accommodation, hospitals, and so on;
- A growing demand for leisure and entertainment, such as hotels, spas and restaurants.
Dominance of chain store retailers is stimulating direct trade
Larger chain store retailers increasingly control the entire chain for home textiles – from production (in developing countries) to the European retail outlet. Large apparel retailers such as H&M and Zara are quickly gaining market share in Europe by offering fashionable home textile articles at reasonable prices. For these large retailers, controlling the chain leads to profit from larger margins and cost-efficiencies at the expense of the position of wholesalers and importers.
In future, these large retailers are anticipated to consolidate their position on the mature western European markets and move gradually towards southern and eastern European markets, especially in large urban areas. This increasingly dominant position will increase the buying power of such large chain store retailers and apparel retailers, which will result in a tougher bargaining position for you, because there will be fewer potential buyers.
- If your scale of operation (high volume, standardisation of products) is able to satisfy the demands of large retailers, you could move up the value chain and trade directly with them.
- Promote the benefits of your country or region to European buyers of home textiles by showing the logistics benefits of trading with your company, such as good infrastructure or proximity to the European market.
- For more information, see our study of what competition you face on the European market for home textiles.
- Work on commitment, mutual trust, cooperation and exclusivity. Get to know your buyers by understanding their situation more fully and stay in touch.
- For more information, see our 10 tips for doing business with European home decoration & home textiles buyers.
Present yourself as a co-supplier
Due to this consolidation in the trade structure, importers and wholesalers are facing stronger competition. This situation affects their buying policies and sourcing strategies. There is a growing need for cooperation within the value chain to compete with the chain store retailers. As importers’ and wholesalers’ influence in the trade structure diminishes, they have to become stronger in information technology, planning and logistics so as to build their supply chain.
The changed nature of trade in combination with the recent recession in Europe has forced buyers to be more aware of risk management. An interesting development in developing countries is the emergence of co-suppliers. By cooperating on production, co-suppliers allow principle suppliers to deliver larger quantities in a shorter lead time. This process allows buyers to cope better with future insecurities and to diversify their supply sources.
- To approach interior specialists or specialist importers/wholesalers, be aware that they demand high-quality raw materials, perfect technical execution and finishing, and efficient logistics. Showcase your craftsmanship in your home textile products.
- Present yourself as a co-supplier to large buyers or to other exporters from developing countries who produce similar home textile items.
Specialisation brings new opportunities for exporters
To compete with the chain store retailers, smaller retailers on the European market for home textiles will increasingly specialise. They distinguish themselves by selling more personalised products with a story.
As a result of further specialisation by retailers, importers/wholesalers are also specialising. They focus on a specific product group or cater to specific consumer target groups.
- To supply to the higher segments, consider tailoring your product line in order to cater to specialised importers and wholesalers.
- For more information on working with smaller retailers, see our study of Alternative distribution channels.
E-commerce offers opportunities
European consumers are increasingly buying online, supported by the widespread use of smartphones and tablets. They enjoy the convenience of online shopping, the sense of community through social media, reviewing purchases for others, negotiating prices and buying in groups. This trend will only increase, particularly among younger consumers.
At present, online retailers are not used to importing directly from exporters from developing countries such as you. They prefer sourcing closer to home, keeping stock risks low and maintaining direct contact with the wholesaler.
- Consider a “Business-to-Consumer” strategy to sell your goods online nationally, regionally or even globally.
- Be aware that e-commerce requires a totally different and tailor-made business model, involving specific arrangements for working capital, investment, logistics, communication, stocking, range development and marketing.
- For more information, see our special study of E-commerce.
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