These days’ people are inclined towards the décor of their houses and prefer spending or saving a portion of their annual income on the renovation and interior of their habitat. The furniture business is a lucrative trade even during the recession as individuals usually purchase furniture just to upgrade their surroundings, or simply may have bought a new house and need furnishings. Many buy furniture to give as dowry for their daughter’s wedding. During recession, this business might slow down but nevertheless still remains a profitable venture.
Furniture industry consists of a number of classifications; there are numerous types of wood and furniture styles. Initiating this business requires intensive capital. If an outlet has only a few items on display, the customer will seldom purchase anything from there. The consumer wants variety and prefers going to big showrooms where there is a wide choice available.
The first step in establishing this business is that the investor has to invest millions of rupees to manufacture the furniture for the display. He will gradually start getting orders from the customers. It is difficult in the initial stages for the investor to get orders without making certain items first for the display.
Most of the furniture showrooms do not take orders from customers for items which they might have seen in a magazine or a catalog. In this case, it becomes very difficult to meet the customers’ expectations, a risk which most furniture manufacturers hesitate to take. The usual market norm is that a client can select from a number of items on display to purchase or make certain customizations in the specified items. There are however, furniture manufacturers working in the market that can make any kind of furniture which a customer desires.
The quality of the furniture depends on the expertise of the workers. A very nominal furniture showroom requires around 40 workers for different work tasks. The investor should try to retain the workers by giving them a good salary and extra benefits so that he does spend time training new workers.
Another fact one should keep in mind is that there is so much work in the market that if a worker notices that there are no new orders, he will leave right away and will easily find a new job. If one does not receive new orders for some time, the business owner should keep the workers busy on the production for the items on display. The salaries of the workers have not increased with the same percentage as the sale prices of furniture increased in the last 2-3 years. The major portion of the profit is being taken by the owner.
Entering this industry requires huge initial investment of minimum of Rs. 4 to 5 million for a nominal start excluding the location rent. This business requires years to reach the breakeven point. In day to day operations, the profit margins are extremely high. If the cost price of an item is Rs. 20,000, the investor can easily sell that item for Rs. 35,000 in the market. Many showrooms are being displayed in residential areas, but experts recommend that the furniture showroom should be located in a commercial area to increase the sales from walk-in customers as well. The sale of a showroom in commercial area is 2 to 3 times higher than a showroom in a residential area.
The wood being used in the furniture is usually purchased in bulk. Only an investor with a huge financial backing can afford to buy the wood in bulk. They prefer buying wood for the usage of 6 months to 1 year as it costs less. For instance, if a business owner buys wood on monthly basis or according to a given order, it costs Rs. 1500 per square feet but if he decides to buy in bulk for 1 year or 6 months, the price lowers down to only Rs. 500 per square feet. When the wood is purchased in bulk, the profit margins increase immensely but at the same times it requires a huge investment to purchase it.
Present Situation of the Industry
Two years back a medium quality bedroom set (three-door wardrobe, dressing table, double-bed and a divider) used to cost Rs25,000-Rs30,000 either of Sheesham Partex wood or deco, which is now priced at Rs40,000-Rs. 60,000.
The price of better quality furniture has surged to Rs 65,000-Rs. 70,000 from Rs. 50,000. However, price also varies depending on locality. The manufacturers of various furniture related-items almost every year increase their prices with the start of wedding season creating problems for already cash-starved families. Keeping in view the poor financial condition of majority of buyers, about 70-80 per cent furniture dealers in the city have put on display average-quality furniture.
A new trend has emerged in deco furniture as makers have now started using fibre for innovative exterior designs instead of expensive engraving wood works, which saves them hugely on cost. A dowry set of fibre work (one double bed, dressing table, one divider and one three-door wardrobe) costs Rs. 100,000-Rs. 130,000, while the price of wood-work set ranges Rs. 250,000-Rs. 300,000. Buyers who usually can’t differentiate between fibre and wood are deceived by some dealers who sell them fibre-made furniture at the price of engraved wood work.
The furniture dealers take out the maximum from the buyers’ pocket on the pretext of rising cost of production, but give meager wages/salaries to their hard-working labor despite having sharply raised furniture prices.
Dealers say that the prices have gone up by 70-80 percent during the last two years, while Karachi Furniture Dealers Group (KFDG) chairman Atiq Mir said some time back that there was 30-40 per cent increase due to surging prices of raw materials. The price of wood surged to Rs 1,500 per square ft from Rs500 two years back followed by 20 per cent increase in chip board, 40 per cent in paint, 30 per cent in glass, 25 per cent in foam, 15pc in spring mattress, 100pc in hard board and 30 per cent inhardware.