“Products here are priced well for their quality,” a shopper at a Nitori store in Shanghai said in early December. “I live close by, so I come here every time the seasons change.”
Nitori has expanded aggressively in China, armed with expertise in manufacturing affordable furniture and homewares in-house. The retailer opened its first Beijing shops in November.
“It’s been our dream to have a Beijing store ever since we opened our first outlet in mainland China in Wuhan in 2014,” Chairman Akio Nitori said.
The company also has developed its presence in Southeast Asia, including expansion into Singapore. Nitori opened a store in the Malaysian capital of Kuala Lumpur in January and debuts its first shop outside of the capital region later this month.
Nitori’s expansion comes as demand for furniture surges in Asia. Malaysia’s real gross domestic product jumped 14% on the year in July-September, though this was fueled partly by a rebound from Covid-related curbs the year before. Consumption, which accounts for over 60% of GDP, grew 15%, underpinning the economy despite inflation.
German consultancy Roland Berger estimates the furniture market in Southeast Asia to be around US$15 billion in 2022 and projects average annual growth of 8% over the next five years.
Consumers in the region traditionally relied on local family-owned shops for furniture. But as incomes grow, “they are choosing to buy from chains that provide stable quality and an extensive lineup,” said Shimomura Kenichi, head of the Asia Japan desk at Roland Berger.
Nitori aims to open 39 stores overseas in the fiscal year ending March, nearly twice as many as the year before.
“We plan to open the same number of stores in Japan and overseas in fiscal 2023, and to open more stores overseas in fiscal 2024,” the chairman said. The company operated 90 outlets in the rest of Asia as of the end of February and aims to roughly triple that number in three years.
IKEA is expanding its footprint in Asia as well. It now has 65 locations in the region outside Japan, including 36 in China. The retailer opened its biggest store worldwide in the Philippines last year.
The Swedish chain also has expanded online sales in China. IKEA bolstered its logistics hubs to shorten delivery times and is making inroads into live commerce, or selling products through livestreams. It expects the furniture market to continue growing in Asia, where the growing middle class brings rapid housing development.
Chinese e-commerce platforms like Alibaba Group Holding’s Taobao also sell furniture in the region. But “homes in China and other parts of Asia often come with built-in furniture”, said Sho Kawano at Goldman Sachs, so affordable furniture retailers like Nitori and IKEA “don’t have much local competition”.
Such chains have “potential in Asia”, he said.
The yen’s plunge also fuels Nitori’s foreign expansion. The company makes around 90% of its products overseas, mainly in Asia, and suffers a roughly ¥2 billion (US$14.6 million) hit to profit when Japan’s currency weakens by 1 against the dollar. Combined with rising shipping costs, the retailer is struggling to maintain its prices in Japan.
Nitori will exit the US by April, seeing an uphill battle to boost performance there.
But its earnings in Asia are less affected by the yen’s recent weakness. Asian markets also are closer to the retailer’s production hubs, which reduces shipping costs. It has built a new factory in Thailand to propel Asian sales and plans to build another in Hanoi by the end of 2023.
Yet uncertainties remain. China’s economy has slowed due to strict zero-Covid measures, with retail sales there shrinking on the year in October. Sales of furniture and related items fell 8.2% on the year for the January-October period to 129 billion yuan (US$18.5 billion).
Tensions between China and the US also could disrupt supply chains. Players like Nitori and IKEA face the challenge of expanding their presence while managing risks, such as by opening smaller stores that require less investment.