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Imported furniture seems to be extremely profitable but the cost is too high
A piece of foreign furniture with an ex-factory price of 10,000 yuan is sold for 40,000 yuan in China. Is there any price markup between them? It is understood that taxes, transportation, rent, and labor costs account for 60% of the price of imported furniture.
Industry insiders say that high-priced imported furniture is not without reason. However, rising rents, transportation, and labor costs have made the prices of most furniture products two to three times higher than the ex-factory price, which is well-supported by evidence.
There are four major levels of furniture imports that create a "magic" effect on pricing. Even if imported furniture sells for one million yuan, it's unlikely that domestic furniture priced at tens of thousands of yuan would make significant profits. Mr. Chen, who has represented a European furniture brand for many years, explains that the additional costs of imported furniture are now very high.
For example, take a set of furniture sold for one million yuan. About 15% of the cost goes to taking goods, and taxes, transportation, rent, and labor costs account for almost 60%. The 25% profit margin is often consumed during the sales process. If this furniture takes half a year to sell, it may hardly make any money.
Currently, the four major factors—taxation, transportation, rent, and labor costs—have become a "magic spell," significantly affecting the final price of imported furniture. Import dealers explain that they must pay at least 20% value-added tax (including 17% furniture VAT and around 3% shipping VAT). Rapidly increasing domestic rents may account for up to 30% of the price, while freight and labor costs could be about 15%. Thus, the cost of importing furniture into China is far from low.
Furniture designers can also make substantial sums of money. For a piece of furniture priced at 100,000 yuan, up to 30,000 yuan might go to the designer. A villa designer mentioned that helping some high-end imported brands succeed could earn more than 30% of the “hard work.†Most industry insiders believe that the “commission†for designers is equivalent to a “promotion fee,†common worldwide. High-end furniture, even worth hundreds of thousands or millions, needs good design to boost sales. A targeted recommendation can double the success rate.
Should this hidden cost be paid by consumers? Zhou Wei, a domestic distributor of DUX mattresses, says not necessarily. Different businesses have different practices. They usually do not directly return cash to the designer but offer a 40% discount when the designer buys the product, effectively promoting it. Only approved designers receive this treatment, with each having only two chances to buy at 40% off.
Imported furniture prices rise due to instability. Germany’s Willer upholstery furniture was fine-tuned at the end of last year. After the Swedish DUX mattress increased its price by 10-20% at the beginning of this year, it was adjusted again by 5-10% mid-year due to product line upgrades. Attentive consumers will notice that most imported furniture undergoes 1-2 price adjustments per year, driven by unstable factors.
Will the additional costs from manufacturers' fine-tuning affect the final selling price? Industry insiders say it usually depends on the agents. Lu Huanying, president of Marburg Wallpaper China, mentions that many high-end wallpaper and fabric brands under his representation also adjust prices periodically. Domestic selling prices are usually determined based on manufacturer price changes. If manufacturers don’t increase much, domestic prices remain stable. Marburg hasn’t raised prices in the past two years.
Zhou Wei, a domestic agent for DUX mattresses, says they won't include the increase in advance unless the manufacturer raises the price. Additionally, the frequency and extent of price adjustments by foreign factories depend on brand awareness, raw material prices, and product update rates—normal price adjustments. However, whether the agent adjusts the price based on these fluctuations sometimes depends on the manufacturer’s “actual situation†and “mood.â€
In general, some smaller domestic agents may increase product prices by about 10% to avoid the inconvenience of annual factory price increases. However, few experienced agents incorporate this cost into the final product price. One of their key annual tasks is to play a game of “price increase or not†with foreign factories. If successful, there might be no price increase of about 8% that year. If the current product price in the country is 40,000 yuan, consumers could save 3,200 yuan.