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What competition do you face on the European home decoration market?

Takes about 13 minutes to read

The barriers to entering the European home decoration market are considerable, due to the strict buyer requirements. The threat of substitution is highest in the lower market segments, where suppliers segments have to keep up with trends and offer quality at a competitive price. Higher market segments demand added value, strengthening your position as a seller. Authenticity and sustainability are key. Developments in emerging markets create both threats and opportunities.


1 . Considerable barriers to entering the European market

Due to the many requirements with which you have to comply, the barriers to entering the European market for home decoration are relatively high. Consumer health and safety, sustainability and good value for money are key.

Strict requirements protect consumer safety

Consumer health and safety is a key topic in Europe. To protect consumers, legal requirements are strict and non-compliance can bar access to the market. Products must be safe to use, and may not pose a health and safety risk. For example, products that come into contact with food are especially tightly regulated. Ceramics should preferably be lead-free, while wooden products should be free from arsenic and creosotes. Achieving compliance is time-consuming and testing is costly.

In addition, buyers may set additional norms for the functioning or packing of your items. For example, a common wooden furniture norm is that holes in tabletops should not exceed 5 mm.

When it comes to requirements, notoriously demanding categories are lighting and toys. Only specialists with sufficient economies of scale can successfully play a role in these categories.

Tips:

  • Follow developments in European buyer requirements. Do not bring concepts to the market without having investigated and tested possible health and safety hazards.
  • See our study of which requirements your product should comply with for more information on market access requirements.
  • Buyers may have specific standards and requirements, laid down in codes of conduct or certifications. Study them and include them in your order specification sheets to avoid any misunderstandings between you, your suppliers and your buyer. Liability issues can seriously hurt your business.

Sustainability is on the rise

Environmental and social sustainability are important issues on the European market. Legislation restricts trade in wildlife or timber products and strives for traceability. In addition, consumers and buyers increasingly express a need to purchase items with “green” credentials. They expect their suppliers to share these values, comply with standards such as the Business Social Compliance Initiative and the Ethical Trading Initiative, and/or have inspiring “green” maker stories.

This trend can form a barrier, but it also offers you an opportunity to differentiate yourself in the market. Fairtrade or other ethical concepts may give you a competitive edge and ease market entry. As today’s consumers are savvier than ever, they demand to see clear evidence of claimed social or environmental impact. Key issues are thus transparency and, where possible, certification.

Tips:

  • Use sustainability as a core element of your identity. Develop “green” concepts with clear social and/or environmental impact. Communicate your green values well.
  • Be ready to prove your claims about sustainability. Use certification and labelling when required and possible.

Consumers demand more value for money

An ongoing development is that European consumers are expecting more for less. Although sustainable niche markets may be prepared to pay a premium, the general market wants more service, quality, design and speed of delivery, at a low price. Buyers may respond to these demands by switching suppliers. This situation places pressure on suppliers to increase their performance and offer competitive prices.

Tips:

  • Increase your service levels to attract new buyers and prevent losing current buyers who are pressured to respond to consumer demand.
  • Provide your buyer with sufficient information on the added value that your product offers. This information enables them to communicate the benefits to European consumers better.

2 . Highest threat of substitution in lower market segments

There is a considerable threat of substitution for home decoration products; especially in the middle and low market segments, where trends are of great influence.

Home decoration products are relatively easily substituted

Substitution is an inherent characteristic of home decoration. A vase can come in any material and technique, making replacement the order of the day; especially as consumers want to have choice. Style and design are differentiators.

Convenience is also an important consumer factor in substitution. Home decoration products that are functional, washable, disposable and/or lightweight may replace others that are not.

Availability is also a key factor. Apart from product features, marketing skills also determine which product “wins” on the market. Those who are unable to keep up with increasingly rapid buying and selling cycles on the market will find their products replaced by those who can. Time-to-market has shortened, especially with the entry of fashion brands such as Zara Home. Especially in the lower ends of the market, loyalty is limited and depends on exporters supplying rapidly and in short runs

Tips:

  • Be the best in your material or technique.
  • Add convenience to your products, such as functionality or ease of use.
  • Deliver on time to your distributor.

Trends influence middle and low market segments

In middle and low segments, consumers are particularly influenced by trends. They prefer new products that are more “now” to existing products. In premium segments, trends are a less crucial buying motive. These consumers value products that are more exclusive or unique, making them less easily substituted. For example, high-end demand for natural materials and “handmade” products may offer you opportunities.

Tips:

  • Follow market trends, especially those related to consumer needs. For more information, see our study of which trends offer opportunities.
  • Especially in the trend-sensitive segments, you should be prepared to work flexibly with your core materials in order to prevent substitution and meet the seasonal demand of the mid-market. This approach can mean creating new looks or finishes at a fast pace and re-styling existing items to suit a new trend.
  • Bring your product offer to a level that impresses buyers from the higher market segments. If your core strength is manufacturing, fine-tune the process to become a key player in your particular price segment.

3 . Opportunities for suppliers to increase negotiating power

Home decoration is a buyer’s market. The chain is long and suppliers have no direct access to the end market. Resellers are the gatekeepers to the market, followed by the importers. Supplier power is therefore limited. Buyer power is especially high in low market segments. Suppliers can strengthen their position by focusing on higher-end markets. You can use authentic designs and materials to increase their negotiating power. Emerging markets and new channels may also offer opportunities.

Suppliers have a stronger position in higher-end market segments

The European market for home decoration is mature and consists of well-established importing organisations. With their knowledge of and access to European consumers, they will continue to possess the key to the market.

Buyers are especially powerful in the high-volume, low-end segments. They can choose from a large pool of suppliers and thereby determine prices. Suppliers here are mostly seen as manufacturers who can be more easily substituted than exporters with a clear own style and identity. In the higher-end segments, the importance of added value makes exporters and buyers depend more on each other. Because of this aspect, buyers are less inclined to switch suppliers.

Tips:

  • Target the higher ends of the market, where suppliers have more negotiating power. Build a distinctive identity on the basis of your unique history, skills, inspiration and values.
  • To add value and appeal to higher-end buyers, consider niche markets such as “handmade”, “green” and Fairtrade. Volumes may be smaller, but importers have a greater need to tell your story and establish a longer-term relationship.
  • If you do wish to target the volume market, you need to make your business lean, set competitive prices, and increase your productivity and flexibility. Operational excellence is a particular differentiator here.

Authentic concepts are a competitive advantage

Consumers prefer a clear offer from brands with an attractive personality. Importers are used to building a strong and attractive identity on the market, whereas exporters often find this fact hard. However, offering new and authentic concepts gives exporters more power when negotiating with the importers that need them.

If certain types of stone, shells, wood, and so on are typical or unique to your region, you can use this aspect to create an authentic concept. This way, proximity to raw materials or the availability of unique materials can create a competitive advantage over European producers.

Tips:

  • Have a degree of authenticity in your concept and product offer. The more your materials or techniques are unique, the more attractive you will be for buyers looking for differentiation themselves. When identities match, the relationship will be stronger and less likely to be disrupted by newcomers.
  • Be a specialist. This strategy allows you to excel in a particular product group, material or style. It may create a solid position in the buyer’s collection and allow them to invest in design with you. Those who do “everything for everybody” can easily be substituted.

Emerging markets and new channels offer opportunities

Growing consumer markets such as China, Brazil, Russia and India can open up new options for you. These emerging markets are showing an increased demand for home decoration products. Initially, consumers on these new markets are aspirational and prefer imported, western-style interior products. Much of that demand may be produced by you, supplied by western brands. As such, it may increase your bargaining power towards European buyers.

Where wholesalers and retail multiples have been importers for a long time, smaller retailers are now also tempted and buy directly from overseas suppliers. This process allows them to differentiate on value-added service, specialised offers and authenticity.

Another market channel worth exploring is e-commerce. So far, mainly end-of-chain players in western markets sell via online shops. However, with increasing technology, know-how, logistics options and consumer demand for online shopping, e-commerce could also be an option for exporters.

Tips:

  • Keep track of emerging regional markets that may increase your sales opportunities and bargaining power.
  • Make sure that you have access to flawless and affordable logistics services when you aim to sell straight to the independent retailer oversees. Also tune your business model so it can cater for small quantities.
  • Study the potential of e-commerce to gain access to national, regional or even global markets. On the longer term, this position may also become relevant to exporters and intercontinental trade.
  • For more information, see our study of through which channels you can get your product on the market.

4 . Competition from developing countries as well as within Europe

Although rising labour costs in China offer opportunities on the lower-end market, these options are most feasible for larger exporters. Competition in higher-end market segments is less fierce, as they focus on added value. Eastern European suppliers form an increasing threat there.

Between 2012 and 2016, European home decoration imports increased at an average annual rate of 5.8%, from € 85 billion to € 107 billion. These imports are expected to continue growing moderately in the coming years.

Developing countries have a relatively stable market share of around 35%, while around 59% of imports come from within Europe. However, these figures are somewhat misleading, as intra-European trade includes the re-export of products that were originally imported from developing countries.

Germany is Europe’s leading importer of home decoration products, worth € 20 billion in 2016. The United Kingdom (€ 14 billion), France (€ 13 billion), the Netherlands (€ 7.8 billion), Italy (€ 6.0 billion) and Belgium (€ 5.5 billion) follow. Together, these main markets account for two thirds of the European home decoration imports. Between 2011 and 2016, they showed a promising annual growth of 3.0–7.6%.

The apparent import share of developing countries is fairly average (32–37%) for these importers, with the exception of the United Kingdom (56%). Again, however, intra-European trade also includes a lot of re-export of products from developing countries.

Europe’s leading supplier of home decoration products is China (28%). Its other main suppliers are mostly European countries such as Germany (13%), Poland (6.5%), Italy (5.2%), France (4.3%) and the Netherlands (4.2%). In addition to the previously discussed re-exports, western European countries generally supply high-quality products of well-known premium brands with a long history. Eastern European countries such as Poland offer relatively cheap production for the mid-low segments.

Developing countries such as Vietnam (1.6%), Turkey (1.1%) and India (1.0%) also export home decoration products to Europe. Apart from the United States of America (2.4%) and Switzerland (1.9%), suppliers from the rest of the world play a relatively minor role.

Import tariffs may vary depending on the product and exporting country. Per product group, your country may or may not benefit from a preferential 0% tariff. This situation could give you somewhat of a competitive advantage.

Tips:

  • Focus on Europe’s main importers of home decoration, Germany, the United Kingdom and France. Its large share of imports from developing countries makes the United Kingdom an especially interesting market.
  • Compare your products and company to the competition from other developing countries. You can find exporters per country via ITC Trade Map to compare on market segment, price, quality and target countries.
  • Determine what import tariff applies to your product in the TARIC database. If you qualify for a preferential tariff, you need a Certificate of Origin to claim it.

Competition is mainly price-based in lower market segments

Suppliers from China, Vietnam and India dominate the low-end, high-volume market. As consumers demand more value for money, rivalry in this segment will increase. Labour costs in China continue to rise, with Chinese factory workers’ wages increasing by 64% between 2011 and 2016. This development gives other volume players from, for example, South East Asia a chance to take market share away from China.

The mid-market segment is also under pressure from consumers wanting more for lower prices. As a result, importers in this segment are consolidating. This situation leaves room for fewer, larger exporters.

In these price-focused segments, you face competition from European producers. Their proximity to the market is becoming more important, as demand cycles shorten and “Made in Europe” becomes a selling point. With relatively low production costs, emerging eastern European suppliers especially pose an increasing threat.

Tips:

  • Meet European buyers at European and Asian trade fairs. Scout for buyers who may want to move away from China to other regional suppliers.
  • Keep an eye on developments in the European mid-market, which may offer fewer opportunities for suppliers in the coming years. Put effort into retaining your customers as well as sourcing new ones by understanding their needs and servicing them well.
  • Focus on operational excellence when you want to compete with the new players from eastern Europe.

Less price-sensitive segments are less competitive

Higher-end segments based on added value require exporters capable of outstanding performance. Competition in these segments is less fierce. Suppliers are able to differentiate themselves by using special techniques and interesting stories.

Tips:

  • Target mid-high to higher-end markets by adding value to your offers. For example, use special techniques, materials and values. “Green” or sustainable aspects will also help you to differentiate yourself.
  • Create a structural place in your business for acquisition and sales so you can be the first to contact buyers. This strategy can give you a head start over your competitors.
  • Raise your level of service to create a more evenly balanced relationship with your buyer. This approach may prevent them from switching to a competitor.
  • For a more in-depth analysis of these developments, see our study of which trends offer opportunities.

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