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Competition in Beijing's thriving do-it-yourself home furnishing market, which is epitomized by a one-kilometer "hardware strip" on the West Fourth Ring Road, is heating up as foreign vendors are hammering their way into the market with high hopes of cashing in on the home improvement craze.
On October 18 last year, British-based B&Q, the world's third largest building materials retailer, opened its first Beijing chain store B&Q Beijing Jinsiji amid great fanfare that drew a huge crowd. Many of the store's shelves were swept empty in less than two hours as eager customers rushed to take advantage of opening day discounts.
It is estimated about 80,000 people visited the store in its first six hours of operation.
The revenue of the store hit 250,000 yuan (US$30,120) on the first day, a Beijing record for a single-day building material sale. The performance also broke all records for the 700 or so B&Q stores around the world.
Understandably, it came as a pleasant surprise to the company's executives. But they soon realized it was not going to be all one-way traffic.
Only 20 days later, a new, bigger and more "glamorous" competitor moved in. The home furnishing fight really kicked off when Tianjin-based Home World opened its second Beijing outlet, close to B&Q Jinsiji.
As the flagship store for the group, the Home World outlet was much bigger, with a total floor space of 54,000 square meters. It cost 200 million yuan (US$24.1 million) to outfit the store - obviously not a run-of-the-mill warehouse.
While the two giants started sparring on the "hardware strip," a host of smaller local stores started joining the fray.
They included Homemart, Arka World, Orient Home and Hongxing Makro.
But the dust is far from settled as at least two likely contenders from Europe are getting ready to climb into the ring. Leroy Merlin of France and OBI of Germany are busy preparing to take hold of their new shops in the area.
Officials from Leroy Merlin were spotted browsing around Home World's Zhengchangzhuang store during its opening day.
Experts predict the huge potential of the home improvement market will attract even more foreign players and those already mixing it up will speed up their expansion plans in Beijing, as well as other Chinese cities.
The latest available official figures show the combined net profit of the home furnishing industry in China totaled 11.89 billion yuan (US$1.43 billion) in 2001, which was a 26.8 percent increase over the previous 12 months.
The output value for China's home furnishing sector is expected to increase 20 percent each year up until to 2005. By 2010, output value is expected to hit 1 trillion yuan (US$120 billion).
In December 2003, home furnishing sales nationwide jumped 1.5 times from a year earlier.
Beside Beijing, B&Q has opened stores in Shanghai, Suzhou, Kunming, Shenzhen and Hangzhou and has planned to open more throughout the country at a rate of 10 to 15 each year. Its target is to have a total of 80 outlets nationwide by 2008.
A strong showing at its stores in Shanghai, Wuxi and Nanjing has encouraged OBI to pursue an ambitious expansion plan of 100 Chinese outlets by 2010.
Meanwhile, Home World, which has outlets in nine cities in coastal areas and North China, has the goal of expanding its network to major cities in the northeast, including Harbin, Changchun and Shenyang, over the next few years.
Yan Ligang, a spokesman for the Beijing Commerce Bureau, said price, quality and service are major competition factors among domestic and foreign players.
Relying on its global purchasing power and self-developed products, B&Q said prices of some of its goods can be 20 to 30 percent lower than its competitors.
Meanwhile, Home World has made a pledge to potential customers that all of its goods will be cheaper than those found at B&Q and up to 40 percent less compared with other competitors.
Its move has sparked a price war in Beijing, pulling prices down by an average of 5 to 10 percent.
Cut-throat competition is forcing home furnishing stores to seek ways to control costs.
"We have taken great efforts to set up a low-cost and efficient logistics system to offset falling prices," said Du Xia, president of Home World.
Some operators are trying to shift the battlefront to quality and service.
"Product quality and service are becoming increasingly important in swaying customers' decisions," Yan said. More groups are focusing their promotional efforts on the quality of their products and the services they provide.
"In B&Q Beijing, customers can enjoy the high level of service we provide in our stores anywhere in the world, including London, New York and Tokyo," said Wen Dong, general manager of B&Q (China).
B&Q's "one stop" service extends beyond the store to include advice on material selection, design and installation, Wen said.
Similar services are offered by other stores. Some have gone even further by providing customers with other amenities.
For instance, Hongxing Makro is bringing Starbucks and McDonald's into its stores in a bid to create a comfortable and relaxed shopping environment.
Huansanhuan has teamed up with several manufactures to set up discount outlets to woo lower-income consumers.
Arka Home and B&Q Jinsiji are building covered passageways connecting their stores to a nearby supermarket, operated by Auchan of France.
A spokesman for Arka Home says the move will be a boon for all three operators by providing a one-stop shopping environment.
Store operators say competition has brought about a fundamental change in Beijing's thriving home furnishing market, to the benefit of consumers,
Wen said: "The market itself will choose who survives. We welcome competition, for it will stimulate us to further upgrade our managerial skills and provide better products and services."
(China Daily February 12, 2004)
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