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Difficulties of furniture e-commerce: how to solve the problem of home online
In the realm of home e-commerce, logistics has long been a major challenge. At the end of last year, Alibaba’s investments began to show progress, suggesting that changes are on the horizon for the industry and offering hope for the growth of home-based online shopping. Previously, companies like Melaleuca and Kumanju demonstrated their success in the home market, confirming that the O2O model—where customers shop online and receive offline delivery and installation services—could become a standard for the development of home e-commerce. As a result, online platforms are likely to follow this already established path.
Currently, among the large e-commerce platforms, only Taobao Tmall and JD.com have dedicated home improvement sections. Even Suning.com, which has been working hard to expand, hasn’t officially launched a home channel. This indicates that the home category is still seen as a risky venture by these platforms, and they’re hesitant to dive in too quickly.
One of the main challenges for e-commerce platforms in the home sector is the difficulty of "going offline." Although Taobao Tmall was one of the first to launch a home improvement section, with many furniture brands achieving over 100 million yuan in sales during the Double Eleven event, the overall development of the home furnishing category remains challenging.
The Ai Hive project, which aimed to bring an offline experience to the online world, seemed to fade away. The Beijing Ai Hive store, once a key part of Tmall’s strategy, is now hard to find, and attempts to replicate it in other cities have not been successful. In 2013, Tmall's O2O plan for home improvement faced resistance from traditional offline malls.
Online platforms' efforts to create physical experiences face a fundamental problem: the cost structures of online and offline operations are very different. It's difficult for online platforms to align with traditional offline channels. For example, the online price of furniture might be 1.3 to 1.5 times the factory price, while traditional retail prices can be more than four times the factory price. In such a scenario, offline dealers struggle to afford the high rent if they sell at online prices, but if they charge traditional prices, customers may turn to online alternatives.
Since the offline experience model isn't viable, the alternative is to rely on third-party services. Alibaba's investment in Haier Rishun Logistics could be a strategic move to solve the issue of delivering home goods efficiently. This model of "online shopping with offline delivery and installation" seems to be emerging as a standard for home e-commerce, and platforms like JD.com will likely follow suit.
JD.com, which is still building its home improvement channel, must rely on its existing logistics system to support online home product sales. While creating a compatible logistics service system is challenging and requires significant investment, the potential market of 2 trillion yuan makes it a critical area of competition.
This O2O model also serves as a unique marketing approach for traditional online-only home furnishings. With the window for building a new independent home e-commerce platform now closed, vertical platforms specializing in niche areas like children’s furniture or soft furnishings may still have a chance. Kumanju Children’s Home, for instance, has found room to grow due to its exclusive Disney license.
Kumanju, a children's furniture brand with exclusive authorization from Disney, transitioned from traditional offline operations to online development. Founded in 2008, it had over 300 stores and sales exceeding 40 million yuan by 2009. After receiving 60 million in funding, the company shifted focus to online, closing over 200 stores—a controversial move. However, its online efforts led to another 100 million in funding, showing the potential of this model.
It's important to note that Kumanju isn't purely an online platform; it operates using an O2O model with physical experience stores. Whether other vertical platforms can survive depends on their ability to implement effective strategies to compete with larger platforms. This includes establishing a physical presence to differentiate themselves.
Looking at the future of integrated distribution, Melaleuca provides a good example. Once a Tao brand, it developed through an online and offline integrated system, allowing it to grow rapidly. By 2013, its sales reached nearly 2 billion yuan, placing it among China’s top furniture brands.
Melaleuca started opening offline experience stores in 2011, integrating online and offline marketing. By 2013, it had over 200 stores, with a monthly sales per square meter of 15,000, far exceeding the industry average. These stores attract 90% of customers from online sources, acting as a bridge between digital and physical shopping.
Consumers don’t distinguish between online and offline when purchasing from Melaleuca. They often start online, then visit an experience store to see the product before making a purchase. This seamless integration is what makes the model successful.
In 2014, Melaleuca expanded further by opening small shopping malls of 5,000 to 10,000 square meters, accepting other furniture brands. This shift from a commodity brand to a channel brand is a key development to watch.