MARKETING EXECUTIVE 2006 8th May 2006

MARKETING EXECUTIVE 2006 8th May 2006 European and Italian Furniture Industry Executive Summary • Project made by: • Giovanni Comboni, CEO Just in Case and Professor to Bocconi University, Milan • Eleonora Fanti, Consultant JIC • Federico Luti, Consultant JIC • Chiara Terminelli, Consultant JIC

Goals • To understand the Italian industry and market profile inside the European context (production, distribution, consumer behaviour). • To understand the most relevant product and market trends. • To understand the most important players’ strategy in production and distribution (benchmark). • To give some suggestions to formulate a general entry strategy.

Italian Economic overview • Italian GDP is estimated to grow in 2006 by just 1,2%. • Private consumption is espected to increase 1 – 1,5% only. • A stronger € in 2006/07 and a tougher competition from firms of Eastern Asia will continue to hit several Italian price-sensitive export industries (Textile, Clothing, Leather goods, Household goods, Furniture). • The cyclic position of the typical Italian styling-based industry is still flat, including Furniture.

Italian economy - General trends - Sources: The Economist and Italian governement DPEF

Main Industrial sectors - Cyclic situation of the main industry sectors - Source: Isae processing on Istat data

Furniture Industry • EU represents about the 37% of the world furniture production value (from 1998, when this percentage was about 50%, the new entries from Asia have been constantly increasing the share of general production.). • Furniture industry represents 2 - 4% of the production value of the European manufacturing industry, the 2% of GDP and the 2,2% of total workforce. • Italy has been replaced by China as the largest furniture exporter in the world. • Around 16.000 Italian firms are estimated to be export-oriented (nearly the 45% of total turnover). • Export increased by 1,5%, import by 12,1%.

Europe furniture production value Source: Union Europeenne De L’Ameublement (UEA), 2005 [1] Austria, Belgium, Danmark, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Netherlands, Portugal, Sweden, Spain, UK [2] Poland, Czech Rep., Slovenia, Hungary, Lithuania, Estonia, Latvia, Cyprus, Malta, Romania, Bulgaria, Norway, Switzerland, Russia.

Furniture firms in Europe EU - 15 Around 106.000 companies operate with 893.681 employees. Only 8.800 of them have more than 20 employees. The number of workers decreased of around 7% in the last four years. German companies (e.g. Schieder, Steinhoff, Welle, Alno) are the largest in terms of turnover, while Italy is not well represented in terms of big-sized companies (only three companies show a high turnover: Snaidero, Natuzzi and Scavolini). The italian companies are around 36.000 in the furniture industry, mostly small sized and organised in productive territorial systems. The average number of employees is 6 in Italy, 78 in Germany and 5 in France. Enterprises with more than 20 people represent the 5% of the total in Italy. Source: Union Europeenne De L’Ameublement (UEA), 2005

Furniture industry concentration Sources: AIDA and AMADEUS 2003/ 2004

Italian furniture industry data Source: Federlegno-arredo - 2005

Firms Source: AIDA 2006 Selected companies - Thai benchmark -

Main business drivers In the Italian furniture industry there are two types of companies: Main drivers useful to choose the strategic orientation of italian furniture company.

Business models of furniture productors Present Source: JIC 2006 This box doesn’t represent strategical groups (companies that compete directly on the market), but only a first release of business models. According to this classification, several manifacturers of different furniture products can be included in the same business model cluster. Micro and small-sized unbranded companies, located in furniture districts, are not included in this first release.

Consumer Behaviour • Consumer propensity seems to be high in European key-markets, even if general consumptions are flat. • The quality of products is the first evaluation-criteria of choosing for the end-consumers in Europe and Italy. • The exhibition of products in POS and the clarity of presentation widely influence the Italian consumer behaviour. • European customers mainly buy in GDO/ Dept. Stores, while the Italian ones prefer the Independent Shop format (product + service + customization). • People belonging to medium/ high level represent the most important furniture market segment in Europe.

European Furniture Consumption Source: Eurostat, 2005

European furniture consumption - FENA survey - "L'Observateur Cetelem" published for the first time a study about the behaviour and the expectations of the consumer in 8 European countries: France, Italy, Belgium, Spain, The United Kingdom, Portugal, Germany and Poland. Housing system Source: www.fena-furniture.com, 2005

Criteria of European furniture consumption - The choice of the shop - Source: www.fena-furniture.com, 2005

Italian Furniture Consumption - Profession - Source: JIC processing on Istat data - 2006 Source: Federmobili 2006

Criteria of Italian furniture consumption - The choice of the shop - Choice of a shop: ranking of the different criteria according to the importance - Italy Source: www.fena-furniture.com, 2005

Distribution • The French, the German and the English furniture distributors are more concentrated than the Italian and the Spanish ones. • Italian independent POS are the biggest part of national furniture distribution (84%); their ownership and management are family-based, and most of them are “Generalists” (see cluster analysis). • The main trends of distribution in Italy are: • Increase of concentration on low/ medium price range (GD). • Threaths coming from big international dealers. • Strategic re-positioning of many Independent POS. • Strategic cooperation among dealers. • B2B and Contract represent a great opportunity of growing in the global market.

Furniture distribution structure - The sale channels - CONTRACT CONSUMER Channels • Independent retail outlet • Generalists • Specialist outlets (mainly kitchens • and upholstered furniture) Direct sale Distribution Formats Large scale specialized outlets* Department stores/ DIY/ mail order : Non specialized outlets : Specialized outlets *: franchising chains, buying groups, specialist furniture chains Source: JIC 2006

Furniture sales per distribution format - 2003 - Source: JIC processing on Federmobili data - 2005

Furniture sales per distribution format - 2003 - * *: for example IKEA Source: JIC processing on Federmobili data - 2005

Furniture sales per distribution format - 2003 - Source: JIC processing on Federmobile data- 2005

Italian furniture distribution - General informations - Year 2003 • Number of firms 16.400 • Number of point of sale 19.000 • - Small size POS (*) (number of POS) 11.000 • Small size POS turnover share 20% • Medium size POS 8.000 • Average display area (Square meters) 350 • Percentage POS with max 5 employees 70% (*) POS Turnover < 500.000 Euros Source: Federmobili, Istat 2006

Sale channels in Italy Source: Federmobili, Istat 2006

Sale channels in Italy - Surface of POS and Market shares - Source: JIC processing on Federmobili data 2005

Main Large scale specialized outlets - Italy - *= 2002 data Source: Federmobili - 2005

Main scale specialized outlets in Italy - Cluster - Source: JIC - 2006

Independent retail outlet in Italy - Cluster - Source: JIC - 2006

Assortment - GD sample - Sample: Source: JIC - 2006

Assortment - Independent retail outlet sample - Sample: Source: JIC - 2006

Distributive formats and type of products- Italy - Source: JIC - 2006

The B2B channel in Italy Large orders Contract Great part of the total B2B market in Italy Small part of the total B2B market in Italy Catalogues Mainly custom made products Main player: • Productor (direct sales); • POS; • Architect/ designer. • General contractor; • Architect (only in Italy). Hotels/ residences; Private and public offices, banks, embasses, official residences; POS/ boutiques; Restaurants, bars, pubs; Cruisers, sea ports; Schools, universities, hospitals; Airports. Main markets: Mainly standard products; only the selling phase of the purchaising is followed. Key features: Total planning, long fulfillment times, on-site surveys, installation. Prevalent in UK and USA. Function in charge: Sales office Contract division

Arreda.net Arreda.net is a marketing/ sales network of POS belonging to the medium/ high segment, located in the Northern-Western Italy. The goal of the network is to increase the turnover by offering a selected range of products and services inside Generalist POS (shop in shop format). Customized/ Double branded, door to door distribution. For further informations: http://www.arreda.net/index800.html

Contacts/ relationships Source: JIC - 2006

Strategy and opportunities - Production - • Strategic options for matching with production, following the Business models (see above): • Availability of Production Capacity; • Job Order production for B2B. • Particularly for Big Specialists, Commercial Companies and Medium quality Groups.

Business models of furniture productors Present Source: JIC 2006

Strategy and opportunities - Distribution - • Strategic options for matching with distribution, following the cluster model (see above): • Enlargement of the assortment; • Integration of the existent products; • Substitution of the existent products.

Legend: Actual absence of outdoor products in the assortment. Actual presence of outdoor products in the assortment. Strategy and opportunities An example - Outdoor - Source: JIC - 2006

Consumption Trends • Traditional and classic materials and colours are mostly requested by consumers, not only in Italy. • The most demanded products are kitchens because of functionality and bathrooms because of quality of life and aesthetics. • Naturalness, wellness, slow life and conviviality are the main concepts expected by consumers, particularly in Italy. • Vintage means classic products, history, modernism.

An example - Materials - Spread use of Teak and of Wengè Source: MIP research for Webmobili* 2006 *: Webmobili is the most important Internet Portal of furniture in Italy. It shows 19.000 products classified in terms of typology, style, material and price range. It allows the customer to collect information about products, brands and point of sale in which he can find what he wants. The analysis of these preferences enables researchers to undertand market and offer trends in the furniture industry. For further informations: www.webmobili.it

Consumption trends Minimalism vs Baroque Eclectism Aware/responsible consumption Vintage and Ethnic Play/ irony Delicacy/ lightness Multisensoriality Conviviality Wellness Ergonomics/ functionality Slow life Cocooning Naturalness Source: JIC research – July 2005

Legend: Actual presence of the trend in the market Growing trend Wide actual presence of the trend in the market Stable trend Consumption trends Source: JIC research – July 2005

Warnings • European furniture Industry is a grown sector, even if it shows several development opportunities in the key-markets and in the emerging markets. • The Thai companies have to work on: • The matching with productors (Design-based companies vs Market oriented companies); • The matching with distributors (Specialized vs Non-specialized, GD vs Independent POS); • in order to understand the best segments/ niches in which they can enter. • Regarding the market, Thai Companies have to reflect upon their positioning: • In Europe • In Italy

Next steps • Next steps for Design, Promotion and Communication: • Trip in Bangkok (first week of June) to meet the group of Thai furniture Companies for: • The presentation of the concept project and selected products for the exhibition foreseen in September/ October in Milan (P. Scarzella and V. Downey). • The presentation of the Marketing Research (G. Comboni). • Presentation in Milan September/ October 2006 and meetings with buyers, Italian producers and retailers.

MARKETING EXECUTIVE 2006 8th May 2006