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The bankruptcy of home begins with the terminal store industry is a crisis or an opportunity?
In 2014, it became clear to the home furnishings industry that the so-called "unfavorable years" had come to pass. From high-level management changes to a wave of store closures during the year, the industry faced constant turbulence. Companies like Dynasty Furniture and Jiefeng Home experienced significant declines in performance, signaling a bleak future for the sector. In mid-June, reports emerged that Huayuanxuan, a major player in Shenzhen’s home furnishing market, was considering bankruptcy. Whether these rumors were true or not, they sparked concern across the industry.
In such a fast-paced and unpredictable market, the home furnishings business is like a ship navigating rough seas—always at risk of capsizing, even if it's large enough to withstand storms. Bill Gates once famously warned Microsoft employees that the company was only 18 months away from bankruptcy, highlighting the fragile nature of even the most powerful businesses.
The trend of store closures began to spread across the industry. In September 2012, American retail giants like Home Depot shut down their operations in China. By 2013, several well-known stores, including Beijing Xinglong Home Building Materials City and Oriental Home Lishui Bridge, were struggling, some even closing their doors. Rumors of the collapse of Oriental Home, one of China’s largest local brands, further fueled the sense of crisis.
These events reflected a broader downturn in the home furnishings sector, largely driven by real estate regulation. Sales of building materials above a certain size fell by 2.46% in 2012 compared to 2011, and 2013 showed little improvement. As a traditional industry, the home furnishings sector has been hit hard by overcapacity, weak demand, and shrinking profit margins.
Small and medium-sized enterprises have been hit hardest, with many forced to close, reduce operations, or exit the market. For manufacturers, the challenges include sluggish domestic real estate markets, blocked export channels, and reduced construction projects. Overall overcapacity has weakened the industry’s ability to withstand shocks.
Is this a crisis or an opportunity? Looking back, the first major wave of closures in the home industry began in 2005, triggered by a shrinking real estate market. At the time, smaller companies were the first to fall. The reasons behind these failures often included broken capital chains, rising costs, outdated product designs, weak distribution networks, poor management, and intense competition.
Capital was always the most critical factor. Most home furnishings companies are SMEs, and funding issues have been their biggest challenge. Since 2005, many small and medium-sized firms have closed, with thousands going out of business each year. Even after the 2008 financial crisis, thousands of companies failed.
Despite the challenges, the industry is now at a turning point. The decline presents an opportunity for consolidation and upgrading. The home furnishings sector must adapt to survive.
The industry itself is unique, relying on semi-mechanical and semi-manual production methods. After 30 years of growth, it has reached a state of overcapacity, with too many stores and thin profit margins. This makes it highly dependent on consumer demand. When the market shrinks, unsold products and cash flow problems can lead to widespread closures.
Huayuanxuan’s bankruptcy rumors highlight the risks of tight capital chains. However, companies that built strong financial foundations during the industry’s growth phase are more likely to survive. Strong financial backing gives larger firms a better chance to endure tough times.
The author believes that as long as leadership remains vigilant, big companies can weather the storm. In a competitive market, success often goes to those with the most resources. But with the growing scale of home furnishings companies, the pressure on entrepreneurs is increasing. A single misstep can trigger a chain reaction, wiping out years of progress.
Therefore, business leaders must remain cautious, always aware of potential risks. The home furnishings industry is a high-stakes game, and only those who stay alert will survive.