IKEA changes the furniture market

The entry of Swedish home furnishings stores IKEA into the Greek market, in Thessaloniki (2001) and Athens (2004), has changed virtually everything in the local furniture market, creating new trends and setting a limit on profit margins for the entire sector. Everyone in the market agrees that the last couple of years have been a crash test for Greek production and retail companies in the sector, which are challenged in creativity, entrepreneurship and pricing policy in search of the right product mix to shield them from the fierce competition. The only exceptions have been the companies that profited from the Olympic Games in Athens in 2004. Even companies in specialist sectors, such as kitchen furniture, appear particularly vulnerable against the low-price competition, which seems to be the solution for many buyers in today’s tough economic market. In this demanding environment, the likely only way out for Greek enterprises is to turn to foreign markets, provided that their financial situation allows that. Survival qualities All of the furniture sector has branded 2005 a tough year and expectations for 2006 are limited due to the difficult times in the economy, while the opening of a third IKEA outlet, in western Attica, is expected to immediately make most companies’ positions even more difficult. Dimitris Varangis, head of the historic Varangis furniture company, says survival is possible only through outward expansion, specialization and quality. «This is the only escape from low-price competition which has shaped the domestic market and changed the habits of buyers,» argues Varangis. «Opening out toward new markets is now dictated by the general conditions in the Greek economy and can be a vital instrument in companies’ efforts to be secure, as far as this is possible,» notes Varangis, whose company has proven to be so vulnerable that in the first nine months of 2005 it showed losses and a decline in its turnover. Nevertheless, Varangis says, the expansion of its activities over the last two years will bear fruit in the future, as this is a long-term investment toward realizing important special, professional projects. Of the company’s entire turnover this activity accounted for 43.5 percent in 2004 from just 0.8 percent in 2002. The recent buyout of Fantoni Hellas SA, specializing in the business-to-business office equipment market, will take the parent company further in this direction. «I believe that from 400 million euros, which was the value of the Greek furniture market in 2002, this will shrink to just 300 million euros in 2006, in favor of imported furniture which from 90.5 million euros in 2002 will increase to 300 million euros this year,» predicts Varangis. Furniture chain Cocomat has invested in higher quality and brand names. Although it is active in a specific section of the market, it is not immune to competition, since, according to Sales Director Costas Maltezos, the price-to-quality ratio has changed forever with the advent of IKEA, just as in other countries. «Quality is our own personal challenge and our clientele is changing with that,» Maltezos says. «Still, chains that propose cheap integrated solutions form general market trends as they are seen as the reigning mentality – it is like fast food,» he comments. Maltezos also notes that, although last year, particularly the first half, was tough, Cocomat improved its sales by 30 percent, from 11 million euros in 2004 to 14 million euros last year. He characterizes 2006 as the year of stabilization. Its existing store network consists of 23 outlets in Greece and seven abroad, with two more to be opened in China this year. Concentration A recent survey by ICAP survey group has shown that the overall size of the furniture market in Greece grew in the 2000-2004 period at an annual rate of 2.8 percent, with big and medium-sized companies claiming 45 percent of the Greek domestic furniture market based on value. Taking conditions and trends into account, the growth scope for the market is limited, while increasing competition and the gradual rise in the market’s concentration may lead to changes in the distribution of market shares. In 2005-6 the local market is showing signs of stabilization, with an annual rate of change at 1 percent. Imports are expected to keep rising, at the expense of Greek-made products. Moda Bagno’s financial director, Anastassios Mytilineos, believes that in this tough year companies will be reorganized toward shrinking their profit margins to become competitive and offering a more attractive final product to buyers. His company sells products to the high end of the market, yet Mytilineos has disclosed that it is examining penetration into the rest of the market. Moda Bagno also intends to get more active in the office furniture market. «The fact that the only outlet we have in Attica has ended 2005 with a rise in turnover of 20 percent makes us move in the next couple of years toward a further increase in our presence in that section of the market,» says Mytilineos. The problems in the office furniture market in 2005 were quite obvious. Dromeas’s financial director, Phaedon Tsangalidis, branded the first half of 2005 as «dead» in terms of sales. «The stiffening competition in the local domestic furniture market has also affected the office furniture market, changing significantly the purchase habits of Greeks,» says Tsangalidis. «Undoubtedly the chains with imported low-cost furniture are hurting the market and are taking a share from the rest, although we believe consumers are adequately informed on what they want,» he adds. Tsangalidis says that exporting activity is particularly important for Dromeas, as it accounts for 18 percent of its turnover, showing a 55 percent rise in 2005: It reached 3 million euros, in the broader Balkan region, Cyprus and the United Arab Emirates, the company’s main export destinations. ICAP’s survey found that the ever-increasing number of importing companies in the kitchen furniture domain has rendered the competition too stiff for many small production firms. The market’s value is estimated at about 350-400 million euros. Worse, many companies avoid issuing invoices or falsify them. Therefore the main instruments for increasing the competitiveness of companies are modernization and the best organization of production units. ICAP argues that it is essential that the public be aware of the differences in quality of furniture and says that the decline in the number of carpenters, the rise in imports and the marginal rise in the share of industries are the main changes to happen in the current year. Crucially, Greek consumers are showing a preference for imported products, especially kitchen furniture, mainly for design and not reasons of price. Most seem to ignore that imported goods are not necessarily better, as the use of artificial wood is widespread. The main origins of imported furniture are Italy and China, with the latter earning a 30 percent share in 2004. Turkey is also upgrading its presence. IKEA’s new store «We have created a trend called ‘I care about my house’ and in this sense we have expanded the market,» suggests IKEA’s general director, Vassilis Goudes, noting that the entry of the Swedish company into Greece has brought about new trends. IKEA also benefited from the artificial rise in construction activity last year. The sales volume of the IKEA store near the Athens airport is estimated at about 100 million euros, while market professionals sadly note that the opening of another IKEA outlet in Attica in early 2007 will «remove» another 100 million euros from the market.

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