Ikea

Euromonitor International HOME FURNISHINGS IN CHINA PASSPORT 1 HOME FURNISHINGS IN CHINA HEADLINES Home furniture market increased to RMB 136. 34 billion with 14. % increase against 2007 Recovered real estate given a chance for home furnishing sector to grow Carpets were the highest growth subsector in 2008 with 16. 3% Ikea and Qumei are the top players in 2008 2008-2013 CAGR to be 13. 6% since demand will be stable or increasing during the forecast period. TRENDS Home furnishing was negatively affected by the recession in 2008, but increasing home ownership created a large market for home furnishing. Market growth is slower compared with 2007, as consumers hesitated to buy furnishing instead spending on necessities.

The government took a proactive attitude to enlarging domestic consumption, by innovating new production, expanding rural markets and promoting the use of textile products in relevant industries, while expanding export destinations to stabilise share in the international market. Carpets were the best performing with 16. 3% in 2008, since carpet prices dropped and consumers gradually accepted carpets as decorative products. When the government released its stimulus plan, it announced plans to increase the tax rebate rate for textile and garment exports from 14% to 15%, which would reduce exporter’s costs and support the textile industry.

Besides short-term benefits, the plan also provides instruction on the structural reform and industrial upgrade of the textile industry in the long run. The unit price has been decreasing for years since low-end products were starting to dominate market sales. Furthermore, market players had to give discounts in order to boost sales. In terms of distribution, about 54% of sales were from furniture and furnishing stores, increasing during the review period, while sales from mixed retailers declined.

Market shares from non-store based retailers like home shopping and internet sales were increasing. Freebies and cheap prices were the main method of attracting consumers. COMPETITIVE LANDSCAPE Ikea hold the largest market share in China, since it built its image as a cheap furnishing retailer with a higher degree of localisation and a strategy of low pricing. Qumei is the second top player, who is known for its innovative design and Western style concepts; their success also relates to functional home furnishing products of good quality, simple and functional design.

HK Royal saw the biggest decrease in share as the company stopped advertisement campaigns giving other makers the chance to catch up with Royal. In contrast, Ningbo Beyond saw the fastest growth in 2008 as it advertised in the mainstream media. The market was dominated by domestic companies with little international competition in furnishing. But the multinationals had strong presence in the premium market, while domestic © Euromonitor International HOME FURNISHINGS IN CHINA PASSPORT 2 companies operated in the low and middle range often plagiarizing the designs of the multinationals.

PROSPECTS With further strengthening of the country’s infrastructure, the textile industry is expected to grow at a faster pace over the next few years. The home furnishing market can be boosted by the real estate industry but if real estate declines the furnishing market will also decline. On the domestic front, local consumption of textile products remains high. Rapid growth of the domestic economy and higher consumer income are expected to push further the development of China’s furnishing market.

The outlook for exports becomes even grimmer, with the government introducing the policy of expanding domestic demand, the domestic market is expected to maintain stable growth which is good for the Chinese furnishing industry. The government’s initiatives such as the reinstatement of VAT tax credits and incentives for makers to upgrade and produce higher quality/value added products will help ensure continued growth of the industry and the need for makers to upgrade equipment and materials used in the manufacturing process. With 2008-2013 CAGR at 14. %, furniture is expected to see the fastest growth since in small cities furniture will be in great demand. But it will be hard to retail in big cities as the market is achieving saturation. Unit price will continue to decrease in the future amid the competition among market players. The price will still be essential to dominate performance, as most consumers will wait for the discounts from manufacturers. Current market trends changed with more and more retailers buying products directly from manufacturers instead of from third parties during the forecast period. New Product Developments

Summary 1 Brand name Qumei Manhattan living New Product Launches 2007- 2008 Company USPs Beijing Qumei Furniture Co Ltd Imported Oaken from USA, furniture combined with Chinese classic design Streamline surface, and inspiration from the sailing boat soft brocade cushion with four buttons,available in various colors bear quilt ,not only can be used as a baby quilt and a soft lovely toy for children, but also can be used as a pretty home decoration. Launch date Dec-2008 Qumei Ship Deck Beijing Qumei Furniture Co Ltd Ningbo Beyond Home Textile Co Ltd Now-2008 Beyond D-013-1 Jan-2008 Beyond ZNB5 Ningbo Beyond Home Textile Co Ltd

May-2007 © Euromonitor International HOME FURNISHINGS IN CHINA PASSPORT 3 Royal Giveni B001 Source: Note: HK Royal Furniture Holding Ltd Long sofa for 9 people Apri-2008 Trade press, company research, trade interviews USP = unique selling point SECTOR DATA Table 1 RMB million 2003 Carpets and other floorcoverings Furniture Household textiles and soft furnishings Home furnishings Source: Sales of Home Furnishings by Subsector: Value 2003-2008 2004 7,005. 1 35,558. 3 28,787. 9 71,351. 3 2005 8,308. 1 41,887. 7 33,969. 7 84,165. 5 2006 9,911. 5 50,307. 1 40,967. 5 101,186. 1 2007 11,728. 3 59,528. 4 47,678. 0 118,934. 6 2008 13,639. 68,649. 7 54,053. 8 136,343. 2 5,961. 8 30,653. 7 24,924. 6 61,540. 1 Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 2 Sales of Home Furnishings by Subsector: % Value Growth 2003-2008 % current value growth 2007/08 Carpets and other floorcoverings Furniture Household textiles and soft furnishings Home furnishings Source: 2003-08 CAGR 18. 0 17. 5 16. 7 17. 2 2003/08 TOTAL 128. 8 124. 0 116. 9 121. 6 16. 3 15. 3 13. 4 14. 6 Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates

Table 3 % retail value rsp Company Home Furnishings Company Shares 2004-2008 2004 8. 0 3. 4 3. 7 2. 5 2. 0 2. 2 1. 2 76. 9 100. 0 2005 7. 7 3. 8 4. 0 2. 6 2. 1 2. 3 1. 2 76. 2 100. 0 2006 7. 3 3. 9 3. 8 2. 6 2. 2 2. 1 1. 4 76. 8 100. 0 2007 7. 1 3. 9 3. 7 2. 6 2. 4 2. 0 1. 4 76. 9 100. 0 2008 7. 0 4. 0 3. 7 2. 6 2. 5 2. 0 1. 4 76. 8 100. 0 IKEA (China) Inc Beijing Qumei Furniture Co Ltd Guangming Furniture Group Co Ltd Beijing Jimei Furniturre Co Ltd Dalian Huafeng Furniture Co Ltd HK Royal Furniture Holding Ltd Ningbo Beyond Home Textile Co Ltd Others Total © Euromonitor International

HOME FURNISHINGS IN CHINA PASSPORT 4 Source: Trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 4 % retail value rsp Brand IKEA Qumei Guangming Jimei Huafeng Royal Beyond Others Total Source: Home Furnishings Brand Shares 2005-2008 Company IKEA (China) Inc Beijing Qumei Furniture Co Ltd Guangming Furniture Group Co Ltd Beijing Jimei Furniturre Co Ltd Dalian Huafeng Furniture Co Ltd HK Royal Furniture Holding Ltd Ningbo Beyond Home Textile Co Ltd 2005 7. 7 3. 8 4. 0 2. 6 2. 1 2. 3 1. 2 76. 2 100. 0 2006 7. 3 3. 9 3. 8 2. 6 2. 2 2. 1 1. 76. 8 100. 0 2007 7. 1 3. 9 3. 7 2. 6 2. 4 2. 0 1. 4 76. 9 100. 0 2008 7. 0 4. 0 3. 7 2. 6 2. 5 2. 0 1. 4 76. 8 100. 0 Trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 5 % retail value rsp Sales of Home Furnishings by Distribution Format: % Analysis 2003-2008 2003 Store-Based Retailing – Grocery Retailers – Non-Grocery Retailers – – Mixed Retailers – – DIY and hardware stores – – Furniture and furnishing stores – – Other Non-Grocery Retailers Non-Store Retailing – Homeshopping – Internet Retailing – Direct Selling Total Source: 004 99. 5 6. 0 93. 5 23. 0 7. 1 51. 0 12. 4 0. 5 0. 4 0. 1 100. 0 2005 99. 5 7. 0 92. 5 20. 0 7. 7 52. 0 12. 8 0. 5 0. 3 0. 1 100. 0 2006 99. 6 8. 0 91. 6 17. 0 8. 2 53. 0 13. 4 0. 4 0. 3 0. 1 100. 0 2007 99. 6 8. 1 91. 5 16. 8 8. 3 53. 4 13. 1 0. 4 0. 2 0. 1 100. 0 2008 99. 7 8. 2 91. 5 16. 5 8. 7 53. 8 12. 4 0. 3 0. 2 0. 1 0. 0 100. 0 99. 5 5. 2 94. 3 26. 0 6. 4 50. 0 11. 9 0. 5 0. 4 0. 1 100. 0 Official statistics, trade associations, trade press, company research, store checks, trade interviews, Euromonitor International estimates

Table 6 RMB million Forecast Sales of Home Furnishings by Subsector: Value 2008-2013 2008 Carpets and other floorcoverings 13,639. 7 2009 15,716. 1 2010 17,967. 2 2011 20,372. 7 2012 23,116. 7 2013 26,355. 8 © Euromonitor International HOME FURNISHINGS IN CHINA PASSPORT 5 Furniture Household textiles and soft furnishings Home furnishings Source: 68,649. 7 54,053. 8 136,343. 2 77,761. 6 59,502. 4 152,980. 1 88,900. 0 65,553. 8 172,421. 1 102,535. 6 71,663. 4 194,571. 7 117,345. 7 79,109. 2 219,571. 7 133,634. 8 86,996. 4 246,987. 0

Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 7 Forecast Sales of Home Furnishings by Subsector: % Value Growth 20082013 % constant value growth 2008-13 CAGR Carpets and other floorcoverings Furniture Household textiles and soft furnishings Home furnishings Source: 2008/13 TOTAL 93. 2 94. 7 60. 9 81. 2 14. 1 14. 2 10. 0 12. 6 Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates © Euromonitor International