Large-scale "resurrection" is a big seller in China

A sofa born in a factory in China, carefully packaged, embarks on a journey to a designated warehouse in China. There, it will undergo a series of preparatory activities: security checks, photo inspections, packing, consolidation, and then boarding a freighter across the waves and heading to the United States. If it is a log sofa, it will also be fumigated to meet export standards.

After weeks of sailing, the sofa finally arrived in the United States, where it was cleared through customs and obtained a pass to enter a new country. After customs clearance is completed, the sofa will be temporarily stored in an overseas warehouse, waiting for the consumer to place an order and then be shipped to the delivery address.

"To do cross-border e-commerce, everyone knows that it is okay to sell it on Amazon, but it is difficult to do large items with a series of problems such as follow-up installation, warranty, return and exchange." Jenny Liu, who is engaged in the furniture overseas business, said.

The export of large pieces of furniture has always been accompanied by the hidden pain of logistics. The characteristics of diverse materials, large volume and irregular shape have brought many difficulties to the overseas of large furniture, and some ultra-high, ultra-wide, ultra-long and overweight furniture have brought a series of complex problems in the distribution and installation links.

In recent years, the big home furnishing has ushered in a growth climax, not only the emergence of Zhiou Home Furnishing, Jessia, Aoji Technology and other brand enterprises that have gathered together for IPO, but also nourished service providers such as Wuwuda and Dajian Yuncang. According to the data released by the General Administration of Customs, from January to April 2024, China's furniture exports reached 168.55 billion yuan, an increase of 20.4% year-on-year, creating a new high for the same period in history.

Among them, there are many factors that deserve in-depth study.

The epidemic prompted, and the large items "saved" Aoji?

Clothing, furniture, and household appliances have long been the main categories of China's foreign trade exports, and they are known as the "old three" of foreign trade. Among them, furniture has the characteristics of large scale, heavy weight and many exports. Since 2006, the mainland has become the world's largest furniture exporter, and has always maintained the first export for many years, with a current output value of more than 35% of the world.

Industry insiders estimate that about 80% of the consumption scenarios of furniture come from offline, and e-commerce sales account for only a small part. Affected by the epidemic and other factors, 2020 has become the "starting year" for China's furniture cross-border e-commerce enterprises to enter the fast lane. The online sales of furniture have also made Amazon's big seller Aoji "reborn".

Aoji Technology, which was registered in Shenzhen in 2010, was once active in the field of cross-border e-commerce as the head of Amazon's 3C, and in the prospectus submitted in April 2024, it has transformed itself into a "brand operator and export logistics service provider focusing on providing high-quality furniture and home furnishing products".

You must know that in May 2021, Aoji experienced a series of changes, and many stores were suspended or restricted from sales by Amazon, and a total of RMB 235 million of funds were frozen. Affected by the "wave of account closures", Aoji will close a total of 276 stores in 2021, with a net loss of 590 million yuan that year. It was also in this year that Aoji voluntarily withdrew its listing application.

Prior to this, Aoji's revenue was dominated by 3C categories, and online home furnishing brands accounted for only a small part of it. However, as the online "battlefield" in the field of consumer electronics has become a red sea, and the price dividend of exports has almost disappeared under the crazy involution, Aoji has to look for a new growth curve and set its sights on the online furniture and home furnishing category that is in the midst of the explosion. From 2016 to 2023, in just 7 years, Aoji's sales revenue of household goods soared from 293 million yuan to 5.337 billion yuan.

According to the International Trade Administration and Frost & Sullivan, the GMV of B2C e-commerce in the global furniture and home furnishing products market will reach US$588.5 billion in 2028, with a compound annual growth rate of 12.6% from 2023 to 2028. On the other hand, although Chinese sellers are the main force in the global online sales of furniture and home furnishings, the overall furniture B2C overseas e-commerce market is relatively fragmented, with more than 150,000 market participants.

Relying on its strong operational capabilities and adaptability, Aoji opened 137 new stores outside the Amazon platform in 2021, including 43 Walmart platforms, 6 Wayfair platforms and 88 other platforms. In 2022 and 2023, Aoji chose to focus on the development of the Walmart platform and the Wayfair platform, streamlining 9 and 135 stores on other e-commerce platforms, respectively. Such an adjustment is reflected in profits, in 2022, Aoji has turned losses into profits, achieving a profit of 223 million yuan, and in 2023, the profit will almost double to 520 million yuan.

Today, Aoji owns furniture and home furnishing brands such as ALLEWIE, IRONCK, LIKIMIO, SHA CERLIN, HOSTACK and FOTOSOK. In 2023, there are 11 brands with revenue exceeding RMB 100 million. According to Frost & Sullivan GMV statistics, Aoji ranks first in all 6 subcategories of Amazon USA, namely bed frames, pantry, dressers and dressers, bookcases, sideboards and sideboards, and refrigerators.

According to industry sources, Aoji has more than a dozen business divisions, all of which adopt the amoeba business model, compete with each other and account independently. There are also a number of companies invested by Aoji that are doing large items, such as ape innovation, Huajie e-commerce, etc.

The industry told the brand factory that the threshold for large-scale cross-border e-commerce is relatively high, and the requirements for cash reserves are also high, because the goods must be prepared to overseas warehouses first, counting the settlement cycle with suppliers and the time spent on shipping, which means that the goods must be sold quickly after being sent to the United States, and if they are not sold, the impact on cash flow is very large. Aoji itself has strong operational capabilities, understands Amazon's rules very well, and understands the consumption habits of American users, so it can do it.

Among them, Aoji's market insight system is indispensable, and it is reported that the system has more than 4.79 million furniture product SKUs, which can conduct a comprehensive analysis of product and competitive market data.

On the whole, the online furniture market has not yet seen a real head, and there are still new brands emerging. In 2020, the sales volume of Yuefusi Technology was about 700 million yuan, and by 2021, it had skyrocketed to 1.3 billion yuan, almost doubling.

"Water Deliverer" logistics warehousing

In the process of the outbreak of furniture going overseas, the development of cross-border large-scale logistics is very important. An industry source told the brand factory, "In recent years, the sudden rise of online home furnishing has a lot to do with the deepening of cross-border, the logistics infrastructure has been improved, and the threshold for general categories is low, forcing everyone to do more." ”

A piece of furniture produced by a Chinese factory first needs to be transported from the factory to the domestic consolidation warehouse, then transported to the overseas warehouse through international logistics, and finally delivered to the user through the final delivery. Different from the domestic market, there are logistics service providers such as SF Express, Debang, Dayayshun and other logistics service providers to provide door-to-door delivery services for large goods, in the European and American markets, DHL, UPS, USPS and other industry giants are deeply engaged in e-commerce small piece distribution, but the cost of large door-to-door service is very expensive.

Xiao Qiu, a logistics service provider, told the brand factory: "When medium and large products are delivered through Amazon FBA, the price is at least $40. "What is a medium-to-large item? Worry-free defines medium and large items as products that weigh more than 20 pounds (about 10 kilograms) each, and Amazon FBA counts items weighing more than 50 pounds (about 22.7kg) as medium and oversized products.

At this time, the emergence of third-party logistics companies with more affordable prices and multiple services such as domestic consolidation, first-leg international freight services, overseas transshipment, overseas warehousing and order delivery has largely alleviated the logistics cost dilemma of furniture going to sea.

In 2020, when the capital was betting on overseas warehouses, Zongteng Group and Xingyun Group completed 100 million yuan of financing one after another, and Wuwuda, which focuses on large-scale logistics, and Postman Pony also completed the expansion of overseas warehouses in the United States around 2020. Zhang Li, deputy director of the Department of Foreign Trade of the Ministry of Commerce, once told the media that in 2020, the growth rate of overseas warehouses will reach 80% in one year, with an area of more than 12 million square meters.

Overseas warehouses naturally fit the pain points of large goods with large size and expensive last-mile freight. "In turn, the overseas demand for large-scale items, special-shaped home furnishings, and home appliances has increased significantly, which has also promoted the development of value-added services such as large-scale cross-border logistics, overseas warehouses, and installation reverse." Xiao Qiu said, "Medium and large items have relatively low requirements for warehouse intelligence, which largely depends on the experience of managers and operators. So many non-standard products need to be manually processed in terms of assembly, disassembly, sorting, and packaging according to the characteristics of different goods. ”

Jenny Liu told the brand factory that furniture products need to be very careful in the planning of packaging size because of their large SKUs, large volume, irregular shape, and fragile during transportation. "We will also discuss with logistics service providers how to make packaging better, safe and economical."

"For brands, the ability to develop potential products and the planning of stocking rhythm are very important, because they should be placed in the front warehouse, so you have to ensure that the goods you ship can be sold, and they cannot be sold out." In Jenny Liu's experience, the last-mile freight also needs to be very careful, and a good service provider can save a lot of last-mile delivery after planning the transportation route.

In order to save logistics costs, Aoji Technology established Shenzhen West Post Smart Warehouse in 2021, which can carry tasks such as domestic consolidation, first-leg international freight services, overseas transshipment, overseas warehousing and order delivery. Through the self-built logistics system and the establishment of a multi-level warehousing and logistics network around the world, the logistics cost of Aoji has decreased significantly, from 29% of revenue in 2021 to 21% in 2023.

According to reports, the price of medium and large items provided by the West Post Smart Warehouse is about 30% lower than that of Amazon FBA. Aoji's logistics-related revenue will reach RMB1.65 billion in 2023, accounting for 19.0% of the overall revenue.

Basically, companies that do well in large items will prepare their own overseas warehouses, on the one hand, to reduce storage costs, and more importantly, to open up the operation and management capabilities of overseas warehouses.

In the field of large-scale overseas expansion, there is another company worth paying attention to, that is, Dajian Yuncang, which was listed on the U.S. stock market in August 2022. Dajian Yuncang, known as "China's first B2B bulky commodity to go overseas". Before 2018, Dajian Yuncang was positioned as an overseas furniture brand company, but after 2019, Dajian Yuncang gave up ToC, opened the B2B platform, and expanded its self-operated overseas warehouse to 400,000 square meters.

In the concept of Dajian Yuncang, the essence of cross-border e-commerce profit improvement is "supply chain front". "Supply chain front-loading" is to put the spot overseas and directly carry out small wholesale or even retail transactions.

In 2023, Dajian Yuncang will acquire two American companies, one is Noble House, the leading furniture company in the United States, and the other is Wondersign, an American software company, the former is a local brand that ranks first in Amazon search traffic all year round, and the latter is a company that makes display boards in overseas offline furniture stores.

A new cycle is coming?

Sales in the furniture industry are significantly correlated with the pulse of the global economy.

In 2021, the demand for Chinese furniture from American retailers soared, and on the other hand, the epidemic has caused a significant change in the furniture demand scenario. Before the pandemic, the demand for interior furniture was focused on creating comfortable, intimate spaces. However, the outbreak of the pandemic has made people rethink their living spaces and their needs for furniture have changed with it.

People are craving more outdoor activities and contact with nature, and the demand for outdoor furniture has grown significantly. The brand factory learned that the consumption of outdoor furniture in foreign countries is relatively large, and the United States is the peak sales season from April to June, "There are more people renting in the United States, many people will go from the east coast to the west coast, and renting houses is actually mainly rough, so you need to buy furniture." So furniture is a consumer durables in China, but it will be consumed more frequently in the United States. ”

In addition, the style of interior furniture preferred by European and American consumers has also changed. The ornate and intricate furniture styles that were once favored in the European and American markets are gradually giving way to simple, modern designs. People's consumption concepts have also changed, and more attention is paid to the practicality and comfort of furniture. Xiao Qiu told the brand factory that due to the impact of the consumer economy, the sales of rattan iron craft chairs in Anxi County, Fujian Province are declining year by year, and products with recyclable materials and imitation wood grain technology are popular with overseas consumers.

From the perspective of product design, the folding furniture market is growing, and multi-functional, small-sized furniture has become the favorite of a new generation of consumers. From the perspective of merchants, detachable furniture can also reduce packaging and transportation costs, and at the same time, this kind of furniture is easy to disassemble and assemble, consumers can install it by themselves, and save a cost.

With the arrival of 2023, the European and American markets have entered a new stage of active destocking. During this period, both wholesalers and retailers were less enthusiastic about furniture imports.

According to an in-depth analysis by Mann, Armistead & Epperson, an American investment institution, the import value of U.S. home furniture will shrink significantly in 2023, falling from a peak of $41.4 billion in 2022 to $32.4 billion, a drop of 21.6%. Against this backdrop, China's home furniture exports to the United States have not been spared, with total exports falling to $9.4 billion in 2023, a sharp decrease of 29.7% year-on-year. At the same time, the total amount of furniture exported from Vietnam and Mexico to the United States is also declining.

Fast forward to the first half of 2024, and everything seems to have changed. According to the data released by the General Administration of Customs, from January to April 2024, China's furniture exports reached 168.55 billion yuan, a year-on-year increase of 20.4%, creating a new high in the same period in history. The order of a furniture company in Jiangsu has been scheduled for August, and workers need to work overtime to pack boxes.

However, according to the brand factory, this is because in April and May this year, the price of first-leg transportation from Asia to the United States continued to rise during the non-traditional peak season, and even "increased by more than 2,000 US dollars in more than a month". The rise in ocean freight costs has caused U.S. furniture manufacturers to panic about the cost pressure caused by rising freight rates, so they are rushing to stock up for transportation delays and supply chain uncertainties.

Other data shows that the sales of home furnishing brands in the U.S. market generally declined in Q1; Sales of furniture and home furnishings fell 6.8% year-on-year in May, the largest decline of any retail sector.

An industry insider predicts that a new cycle is coming, and the home furniture category in the U.S. market may enter a slow-selling period in the second half of the year. "This is a group irrational behavior, and in the future, affected by factors such as supply inertia and inventory accumulation, there will be a trend of unsalable in the next cycle, and overseas warehouses will also be affected."

This seems to have fallen into a cycle, and the more optimistic market conditions in 2021 have made some sellers too aggressive in stocking, so "clearing inventory" has become the theme of 2022. The operation of large-scale products still needs more refined preparations.