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CSIL

WORLD FURNITURE OUTLOOKFUTURE PERSPECTIVES & OPPORTUNITIES

CSIL Centre for Indust r ia l StudiesCorso Monforte 15, 20122 Milano, Italy

tel.+39 02 796630 fax +39 02 780703

[email protected] www.csilmilano.com

Sylvia Weichenberger

Senior Partner CSIL

TOWARDS A BETTER TOMORROW

Le Meridien Hotel, Kuala Lumpur

October, 18th 2018


Contents

GLOBAL FURNITURE

CONSUMPTION

MARKET

TRENDS

AND

OUTLOOK

GLOBAL FURNITURE

PRODUCTIONFORECAST

CSIL, CENTRE FOR

INDUSTRIAL STUDIES

Kuala Lumpur, October, 18th 2018

WOOD FURNITURE


Milan, Italy

100 CountriesMONITORED

MARKET RESEARCH

Off the shelf

Custom made

FURNITURE AND FURNISHINGS

STUDIES

1980

Home Upholstery

MattressesOffice

Kitchen

Bathroom

Lighting

Fixtures and

Appliances

“Our Global Perspective”OVER 38

YEARS

CSIL, Centre for Industrial Studies

STUDIES



Contents

GLOBAL FURNITURE

PRODUCTION



0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Global furniture production

World furniture production, 2008-2017

Source: CSIL

Current US$ billion

World furniture production has beengrowing at a global level. Almost +20%(current USD) cumulative growth between2008 and 2017.

Recent growth was sustained by severalfactors:

• Improving macro-economic context -growth and real estate activity after thecrisis in 2009 and 2010.

• Constant and fast growth of furniture consumption in emerging markets and progressive sector industrialization.

• Restart of growth in some largetraditional industries.



Europe

26%North

America

15%

Asia and

Pacific

54%South

America

2%

Middle East

and Africa

3%


Ten years ago…

…today

The geography of furniture production has changed considerably over the last decade.

Main factors affecting the global context:

✓ The pressure of globalization.

✓ The rapid industry development in some emerging, fast growing countries.

✓ Issues relating to competitiveness.

World furniture production. Breakdown by areas, 2008 and 2017


Source: CSIL

Europe

42%

North

America

19%

Asia and

Pacific

33%South

America

3%

Middle

East and

Africa

3%

% shares on PRODUCTION VALUES


0

50000

100000

150000

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250000

300000

Europe North America Asia and Pacific South America Middle East and Africa

2012 2017

0

50000

100000

150000

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250000

300000


2012 2017

0

50000

100000

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2012 2017

0

50000

100000

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2012 2017

0

50000

100000

150000

200000

250000

300000


2012 2017

-34%

+15%

+5%


World furniture production. Growth rates by areaPercentage growth over the last five years (2012-2017) in current US$

Furniture production has been:

✓ Sustained in Asia-Pacific.

✓ Steady growing in North America stimulated by the US market.

✓ Mixed performance across countries in Europe.

✓ Under performing in South America but recently recovering.

✓ Still marginal role of the Middle East and Africa.

-4%

North America Europe

Asia and Pacific

+20%

South America


Source: CSIL

Middle East and Africa


Furniture production in Asia Pacific


Furniture production, 2015-2017Percentage YoY growth in current US$

Source: CSIL

0

50

100

150

200

China Asia and Pacific

(excl. China)

0

50

100

150

200

China Asia and Pacific

(excl. China)

China

0%+3%

Asia and Pacific (excl. China)

6% 7%

Prospects for Asian furniture production (and markets) arebetter than anywhere else in the world.China is the largest manufacturer, but others are growing faster.India and Vietnam fastest growing producers.

Some issues are affecting the present and the future outlook:

✓ Competition and pressure on prices both within the regionalmarket and for export is increasing.

✓ Labour cost and labour availability are impacting oncompetitiveness with wages sensibly lower in several countries ofthe area.

✓ Raw material supply becomes increasingly crucial. Access to andavailability of natural forests diminishing.

✓ New legislation (compliance to regulation and sustainability),new technical standards (toxin and VOC emissions), safetycertification (flammability) and environmental concerns areaffecting sales, both at regional level and on export markets.


Furniture production in America and Europe


Europe. Furniture production by area, 2015-2017.

Source: CSIL

✓ Eastern EU countries increasingly competitive in terms of supplies.

0102030405060

Usa Canada Mexico Brazil South

America

(excl.Brazil)

0102030405060


America

(excl.Brazil)

0102030405060


America

(excl.Brazil)

0102030405060


America

(excl.Brazil)

0102030405060


America

(excl.Brazil)

United States

+2%+2%

Canada

+5%+8%

Mexico

-5%+3%

South America (excl. Brazil)

+4%-7%

Brazil

+16%-6%0

20

40

60

80

100

Western EU Eastern EU Central-East

Europe outside the

EU and Russia

+1%

+5%-5%+5%

+7%+10%

Western EU0

20

40

60

80

100


Europe outside the

EU and Russia

0

20

40

60

80

100


Europe outside the

EU and Russia

Eastern EU Central-East EU outside the EU and Russia

Percentage YoY growth in current US$

America. Furniture production by countries, 2015-2017.

✓ US driving North America.✓ Brazil recovering.

Percentage YoY growth in current US$


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20000

Ger

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y

Ital

y

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Fra

nce

Tu

rkey

Spai

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her

lan

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ssia

Swed

en

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mar

k

Ro

man

ia

Au

stri

a

Cze

ch R

ep

Bel

giu

m

Po

rtu

gal

Lit

hu

ania

Slov

akia

Hu

ng

ary

Swit

zerl

and

Fin

lan

d

No

rway

Uk

rain

e

Slov

enia

Bo

snia

Her

z

Furniture production in Europe by country


Europe. Furniture production by main countries, 2017Current EUR million. Growth trend 2017/2015 in current EUR

Source: CSIL

Differences in production performances between EU countries.

Traditional manufacturing countries except UK performed well in 2017.

Eastern EU manufacturers performed comparatively better than western EU manufacturing countries:• Lower labor costs.• Easy access to raw

materials.


Contents

GLOBAL FURNITURE

CONSUMPTION



0

2000

4000

6000

8000

10000

12000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0.0

1.0

2.0

3.0

4.0

5.0

2008

2009

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2015

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2017

0

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2008

2009

2010

2011

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2015

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2017

The Global furniture consumption

World furniture consumption, 2008-2017Current US$ billion

WORLD - Total population. Billion

WORLD - Urban population. Billion

WORLD - GNI pc. US$

From a global perspective all the drivers of furniture consumption performed positively:

✓ population✓ urbanization✓ income availability

Relevant differences in market performances exist across and within the geographical areas.


Source: CSIL

0

50

100

150

200

250

300

350

400

450

500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Global furniture consumption

Ten years ago……today

World furniture consumption by geographical regionFurniture consumption value, 2008 and 2017. Percentages


Source: CSIL

Europe

42%

North

America

25%

Asia and

Pacific

26%South

America

3%

Middle

East and

Africa

4%

Europe

26%North

America

23%

Asia and

Pacific

44%

South

America

3%

Middle East

and Africa

4%

When looking at the global market, consumption by geographical region (in value terms) has evolved and it is different from a decade ago.

✓ Consumption share in Asia Pacific region almost doubled.

✓ European share in global consumption decreased was almost cut in half.

✓ North America almost maintained the same share.


Top 10 markets account for 80% of world furniture consumption.

China being the largest market accounting for 30%.

Significant growth in furniture consumption registered in India.

Global furniture consumption

Furniture consumption. Top ten markets, 2015-2017Current US$ billion and cumulative growth over the last three years (2015-2017) in current US$


Source: CSIL

0

20

40

60

80

100

120

140

China USA Germany India Japan UK France Canada South

Korea

Italy

+7%

+8%

+4% +20% +7% -4% +8% +11% +13% +7%


Contents

FORECASTS


© CSIL Centre for Industrial Studies Kuala Lumpur, October, 18th 2018

Global furniture production% change in real terms2010-2017; 2018; forecast 2019-2022

2.7%

3.5% 3.3%

CAGR 2010-

2017

2018 CAGR 2019-

2022

The forecasts

Source: CSIL

Main factors for the positive scenario for furniture production forecasted by CSIL: • Positive trend in furniture demand. • Increasing international trade.

Other key indicators: • Woodworking machinery sales for Germany and Italy (the two

leading technology suppliers in the world) were up around 10% last year.

• The WBP industry which recovered in 2016, had a strong 2017 and is facing brisk demand in 2018.

• Several wood based panel investments were reported, particularly in China and Eastern Europe but they spread also globally.

However, this scenario is subject to downside risks because of possible major disruptions of international trade which are not taken into account because unforeseeable at the moment. These factors could negatively affect both international trade and the situation in specific countries.

CARG: Compound annual growth rate


Furniture consumption forecasts, 2019Forecasts of yearly changes in real terms

The market situation remains positive globally.

Asia is leading growth, but some contribution also from mature markets.


0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

World

Asia and Pacific

North America

Middle East and Africa

South America

Europe

The forecasts

Source: CSIL


World trade of furniture

US$ bi l l ion

Current US$ billion

Around 30% of global furniture output is traded internationally.

Furniture as well as components are increasingly traded internationally. The drivers:• International value chains.• Global sourcing. • Opening of markets.

The future scenario:According to CSIL forecastsinternational furniture trade is set togrow up to 2020.

Uncertainty of trade policies is a key issue.


Forecasts: international furniture trade

Source: CSIL

0

20

40

60

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120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022


Contents

WOOD FURNTIURE




World furniture production. Breakdown by segment, 2008 and 2017 % shares calculated on production value


Source: CSIL

Upholstered

furniture

17%

Office

furniture

12%

Kitchen

furniture

12%

Other

household

furniture

59%

Ten years ago… …today

Upholstered

furniture

15%

Office

furniture

14%

Kitchen

furniture

14%

Other

household

furniture

56%



World furniture production (excl. upholstery)

Wooden furniture, including solid wood furniture and wood based panel furniture, accounts for a substantial share on sector production.

Breakdown by material, 2008 - 2017


Source: CSIL

Office

furniture

Kitchen

furniture

Other

household

furniture

% shares calculated on production value

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Other materials (metal, plastic, bamboo,

rattan, wicker and other materials for

furniture)

Wooden furniture (solid, WBP)

Other materials (metal, plastic, bamboo, rattan, wicker and other materials for furniture)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



furniture)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



furniture)



Global furniture trade

World furniture trade. Breakdown by material, 2008 and 2017Percentage shares calculated on exports value (excl. upholstery)

Wooden furniture, including solid wood furniture and wood based panel furniture, accounts for a substantial share on sector international trade.


Source: CSIL

Metal

28%

Plastic

3%Bamboo,

rattan, wicker

and other

materials for

furniture

4%

Wooden

furniture

(solid, WBP)

65%

Ten years ago… …today

Metal

26%

Plastic

2%

Bamboo,

rattan, wicker

and other

materials for

furniture

4%

Wooden

furniture

(solid, WBP)

67%


Trends affecting furniture consumption

Europe. Some examples

Height adjustable

bed systemSolid wood in

perfect shape

Solid wood in the

bathroom

Material mix in the

dining



Contents

MARKET

TRENDS



Mega trends affecting the way people live and impacting on furniture purchases, particularly in

large traditional markets

Trends affecting furniture consumption

Increasing connectivity Changing society, ageing of population

Increasing mobility

Urbanization, smaller houses

Environmental consciousness Shrinking budget available/devoted

to furniture purchases



China. Trends in solid wood furniture consumption

✓ Increasing share of wood in the preference of Chinese consumers. Main driver: living standards are growing and families are asking for solid wood instead of wood based panel furniture which is perceived of lower quality.

✓ High-value decorative solid hardwoods such as walnut is often used in combination with low-cost plantation wood (inside).

✓ Oak dominates the contemporary furniture market. Walnut continues to be highly popular in higher end markets. Tulipwood is also a trend.

✓ Smooth finishing are preferred.



Europe. Trends in solid wood furniture consumption

✓ Wood is appealing. Solid wood remains favourite material, especially in the middle and upper range. Trend toward natural wood with finishing almost invisible. Natural oil usage is increasing among leading companies. Oak, beech, ash and light-coloured wood are increasingly used.

✓ Material mix combination is modern. Natural wood is often combined with glass, metal or stone, to give a modern aspect to furniture. Wood is combined with leather, for example in the bedroom or in the top of cabinets.

✓ Matt and super matt (opposed to glossy) is a preferred finishing option in Europe. The trend is versus matt finishing, whereas glossy and brilliant finishing are losing importance in the European market. The super-matt trend goes along with the anti-finger print finishing and high resistance of furniture surfaces.

✓ Smoother wood finishing with the natural touch effect, as if there is no treatment on the surface are increasing in Europe.



USA. Trends in solid wood furniture consumption

✓ Increase in solid wood furniture in high-end, mid- and even lower-priced furniture pieces, “by manufacturers who have learned that consumers understand the benefits and value.”

✓ Preferred woods in furniture are ash, pine, gum, and poplar; pine, fir, and other inexpensive woods are used for hidden parts.

✓ Furniture trends in 2018 also involve the use of wood with dark finishes to add depth, and sophistication, and elegance.

✓ Colors: deep wood finishes, rich shades of brown, cherry, espresso, merlot and black.

✓ Glossy finishes, black and white palette, gray.

✓ Materials: wood mixed with plastic, metal, steel and glass. Natural wood with wood grain pattern. Colors: natural wood finish, oak, pine, brown, walnut, maple.



The Outlook

The future?

✓ World GDP is expected to grow over 3% in 2018 and 2019 (World Bank in June 2018).

✓ CSIL forecast: increase of furniture production 2018 of over 3% , which should be confirmed in the coming years (even if slightly decreasing in the medium term).

✓ Sector growth is expected to be driven by a positive trend in furniture demand as well as in international furniture trade (over 30% of world output and it is forecasted to grow by 7% and 5% respectively in 2018 and 2019 by CSIL).

✓ Expectations of the CSIL surveyed sector companies are optimistic with three quarters of interviewed expressing a positive forecasts for 2018-2022 (survey of June 2018).

However, this scenario is subject to downside risks because of possible major disruptions of international trade which are not taken into account because unforeseeable at the moment.



The OutlookFrom a geographical perspective:

✓ APAC will continue outperforming the world average in terms of growth rates even if decelerating in the medium term, mainly as a consequence of the Chinese reduced speed in furniture production.

✓ EMEA region is set to grow at over 2% per year, (a rate double than the one registered since the beginning of the decade). This is due to a more positive scenario on the regional market and lively export activity, particularly for traditional producers.

✓ NAFTA growth, led by the US, should also be in the range of 2% in the medium term, with consumption drivers acting actively and stimulating furniture production.

✓ LATAM is on a recovery process, led by Brazil.

This perspectives for positive growth generates an increasing demand for wood resources. With the impact of regulations on wood product trade and trade policies on globalization, alternatives to wood (due to costs, logistic, sustainability…) will be increasing, along with changing preferences and trends in each region.



Thank you!

For any questions:

[email protected]

Senior Partner CSILSylvia Weichenberger

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