Online Furniture Brands Are All Opening Physical Stores. What Does That Really Get Them?

Either way, the furniture and home-goods business no longer seems to be competing on the furniture itself. The competition has moved to brand experience and service.

In 2013, Yang Xili opened a Taobao shop for Zhiyin, her original furniture design brand. The question she heard most often back then was: "Why are you selling furniture on the internet?"

It wasn't hard to answer at the time. On the "residential furniture" ranking for that year's Double 11 shopping festival, the top brand, Linsy, had already logged more than 100 million yuan in sales, moving over 70,000 items.

What Yang told the media then: "E-commerce platforms have overturned the business model. We didn't decide that, the times did. We're just going along with it." Young people of marrying age, she felt, were already used to shopping online, and e-commerce could break through geographic limits and cut out the costs of the middle links. For a young designer who had just come home from studying in Japan, building an online brand was close to the natural choice.

Lately the question has come back to her in a new form: "When are you opening a physical store here?"

Online retailers in every category now talk about "omnichannel," and their reasons for opening physical stores generally come down to two: a better shopping experience, and an escape from the fiercer competition and rising traffic costs online.

The second reason above all. In China, the years 2010 to 2012 — the "Taobao traffic dividend period" — are over, and it is hard to imagine Double 11 sales leaping from 936 million yuan to 19.1 billion yuan again. Abroad, Macy's and Nordstrom spent as much as US$6.4 million and US$4 million respectively on keyword ads in the first quarter of 2015.

With furniture — bulky, expensive, nothing like fast-moving goods — customers want a physical store even more than they do for clothing or accessories. In the Survey of Purchase Expectations Among Chinese Urban Households, First Quarter 2016, published by the Key Commodities Forecasting Center at the Ministry of Commerce's research institute, 31.0% of respondents in 2016 chose "physical store plus online shopping," a share that keeps climbing year over year. Rather than buy straight from a website, many shoppers still want to see the real thing at a showroom or a factory first, then take the convenience of ordering, paying, delivery and installation online.

What kind of store to build, and what it is mainly for, is where furniture brands part ways.

A Showroom Is About Experience More Than Foot Traffic

Like the British furniture e-commerce brands made.com and Hem, Yang Xili chose a showroom. Three features define it: customers look at the goods offline and order online, which removes the burden of inventory; the site sits on a secondary street in a major city, reaching the target customer while saving on rent; and the design of the store matters, because it carries the brand's tone.

Of the three, the word Yang said most often was "brand." Whether a brand sticks in people's minds is, she believes, what decides who wins among original designers — and a physical store may be the first step in making a brand image three-dimensional.

"Chinese furniture buyers are past the stage of worshiping anything foreign. They can judge for themselves now. What decides a purchase is whether it looks good, whether it suits the home, whether it works. But original furniture design has become very homogeneous, and I think Zhiyin needs to find its own design language and build its own brand, so that people see a piece and know it's Zhiyin."

Mr. Cao, walking through Zhiyin's new Beijing store for the first time, bore that out. His home had just been renovated and he was after "good-looking, Scandinavian" solid-wood tables and chairs, so he asked for a product catalogue. Flipping through it, he said: "Duoshao, Shang Xia — there are a lot of brands doing solid wood, design-driven, buy-it-online. They all feel similar. If nobody points it out, you can't tell which brand it is, so when I buy online I mainly look at value for money."

When Zhiyin was founded three years ago it already had a 300-to-400-square-meter showroom in a creative industrial park in Shanghai's Yangpu District, right next to the office. Being far from the city center, that showroom works more like a nicely designed warehouse, and it has done little to drive traffic online. It plainly could not serve the growing number of customers in northern China either. In the review section of the Taobao store, Beijing buyers kept asking when Zhiyin would open a shop in Beijing.

At the end of June, Yang found a new 55-square-meter space on Yangmeizhu Xiejie in Beijing's Dashilar. It is still a showroom, like the Shanghai one, but Yang thinks this store does more to let people feel "what kind of brand Zhiyin is."

Zhiyin's Beijing store

Dashilar is one of the first 30 historic and cultural districts named by the Ministry of Housing and Urban-Rural Development and the State Administration of Cultural Heritage, and it is the main venue for Beijing Design Week every year, which has drawn in a crowd of cultural and creative brands. Yangmeizhu Xiejie runs only 496 meters, from Meishi Street in the east to Yanshou Street in the west, yet it holds dozens of independent shops. Foot traffic is heavy and costs run below those of mid-to-high-end shopping centers; homes sit mixed in with cafés, bookstores, accessory shops and the storefronts of independent design brands, which gives the street a solid, lived-in feel.

That lived-in feel is what Yang wanted. The renovated showroom's façade is laid with vertical tile, so it looks like an ordinary house; inside, a living-room area has been set aside, with a bar, a sofa, a coffee table and a bookcase, like a show flat parachuted into a hutong. The 55 square meters match Zhiyin's target customer exactly: young families who have bought their first apartment, usually a small or mid-sized one.

"It isn't a point of sale, it's a point of interaction. I wanted layers, warmth, closeness to daily life. I want fans to see this store, see the furniture design in it, and know at once that it's Zhiyin."

You can also see the contradiction in the design. To show as many products as possible, nearly two-thirds of the showroom is still given to display platforms, with two or three dozen classic pieces set out on steps that rise one above the next — chosen because customers had repeatedly asked to see them in person, because they sell well, or because supply is plentiful. The effect is somewhat crowded.

Lost & Found's store after renovation

Li Ruofan, who founded Lost & Found, thinks much as Yang does. Her brand began as a physical store, but Taobao now accounts for a third of sales, and she too has had to start asking how to use the brand to draw younger buyers.

"I still think you have to build a scene — not the internet kind, but showing through a physical space what a home could be."

Rebuilding the store was the first step in putting that idea on the ground. Six months ago Li went to the architect Shuhei Aoyama, wanting to turn Lost & Found's first store — No. 42 Guozijian, opened in 2008 — into something that felt like "a home in a hutong," which is itself part of the brand's story. Both believe that if all you want is to buy something, Taobao will do. What pulls people into a store is a particular experience: a public space that feels like a home, where you can sit down, drink a coffee, read a book.

"Their old store was a beautiful store too, but the problem was that most people stayed in it a very short time. The place felt like a shop — you looked at a round of nice furniture and you could leave. But more and more commercial spaces are turning from shops into places, or you could say from places that sell things into one stop in an experience," Aoyama told QDaily.

To fit a study, a kitchen, a dining room, a bedroom, a balcony and the other functional zones of a real home into a 70-square-meter shop, Aoyama dropped the floor half a meter and raised the roof on the side away from the street. The space became two levels, and the total area grew to 114 square meters; a 14-square-meter storeroom at the back became a tea room.

On opening day, August 28, a customer pointed at the black walnut cabinets in the "kitchen" and told us: "I thought black walnut in a kitchen would feel oppressive, but with some metal trim it actually looks stylish." She didn't order any furniture on the spot, but a staff member walked her through following Lost & Found on Taobao.

A Store Is Also Something to Talk About, Which Builds Buzz for Sales

Not every online furniture brand thinks a store only has to put the brand image across.

"From 2001 to today, 2016, I think when you run a company there is really only one most basic moral obligation you owe your employees, your directors and your investors: you have to make money," Zaozuo's founder, Shu Wei, said at a forum on "monetization" in April.

On July 16, Zaozuo, which raised 15 million yuan in a Series A round last year, opened its first physical store, on the basement level of Indigo mall on Beijing's North Fifth Ring Road. Indigo is a mid-market, community mall, ringed by Jiuxianqiao, thick with internet companies, and several upscale residential compounds; it is a five-minute drive from the headquarters Zaozuo moved into at Hengtong Business Park in March. The basement connects to Subway Line 14, one of the Beijing lines that links the most old and new commercial districts, running through six property and retail clusters: Jiuxianqiao, Caihuying, Jinsong, Dawanglu, Chaoyang Park and Wangjing.

The intent is plain: it wants foot traffic, it wants sales. Next to Zhiyin and Lost & Found, whose teams number twenty or thirty, Zaozuo's 70 people may have more capacity to build a store in the full sense of the word.

Zaozuo's Beijing store

At 300 square meters the store is not large for a mall, but hundreds of products are laid out across it, like a big warehouse. Metal grids cover the shelving, the floor and the ceiling, dividing the display space for each item into squares of three sizes: 400 by 400 mm, 800 by 800 mm and 1,200 by 1,200 mm. The large pieces — chairs, sofas — hang on tiers of shelving up to four meters high, which in Zaozuo's own words lets "customers observe every detail of a product from 360 degrees." Within arm's reach sit the home goods: ceramics, towels, cushions, blankets.

Hanging the large pieces on the wall means a customer in the store cannot try most of the products, only touch them or look. Lin Hai, who runs Damu Architects, the firm behind the design, told QDaily that this partly answered the store's need for storage — the walls near the floor were all built as hidden cabinets, to keep small goods in.

Shu Wei says the display has nothing to do with "a small store wanting to show a lot of items." It is that the buyers Zaozuo aims at, the new urban middle class, would rather buy home furnishings piece by piece and combine them as they like.

Some customers are still puzzled. Mr. Xu, 25, a product designer in Beijing, began following Zaozuo because of its ceramics collaboration with the painter Wu Guanzhong. He rents, so he has bought no furniture from Zaozuo yet, only small household items. He asked us: "The store is well designed, and the shelf-style display is fairly novel. But why isn't there more you can sit on? I wanted to try their sofa."

More than the store itself, Zaozuo's real focus may be the run of marketing it hung on the "opening of our first store worldwide." Shortly before opening, Shu Wei went on BTV's entrepreneur contest show Win in China and repeated her business model to the audience and the investors for another year; the website added installment payments and a "bulk order procurement" section for B2B customers.

The advertising and events that followed came thick and fast: three temporary showrooms running 45 days each, at Chaoyang Joy City, Parkview Green and Indigo; the subway advertising agency Gaode China hired to buy ads on Line 14, wrapping whole trains, walls and pillars; a display area of more than 40 square meters showing 11 products on Dawanglu, near the luxury store SKP; and on opening day, copies of Zaozuo 2 handed out to the press and a promotional film screened.

Zaozuo's Shanghai store

By October 15, Zaozuo's Shanghai store had opened as well, at Xingfuli, No. 381 Fanyu Road, in Changning District — a long, narrow pedestrian street that finished its renovation and reopened only in April. It is close to Shanghai Jiao Tong University and Subway Lines 10 and 11, with dozens of upscale residential compounds and office buildings around it, among them Taizi Apartments and Huashan Liyuan. A resident told QDaily that a room of just over 40 square meters here rents for around 4,000-odd yuan, but many foreigners live there, and plenty of people who work nearby bring their children over after work to eat and stroll.

A year ago Shu Wei told QDaily that Zaozuo would put its weight on "product development." Now she believes the company has entered a new stage. "Opening physical stores is Zaozuo's first time setting a tone for the brand, and we'll keep putting money into marketing in a planned way… We're ready to welcome more new users."

"No Need to Overstate What a Physical Store Can Do"

Zhiyin and Zaozuo were founded in Shanghai and Beijing in 2013 and 2014; Muzhi Gongfang, founded in Hangzhou in 2010, opened a physical store earlier than either. Like Zhiyin's, it is a showroom: 200 square meters, in the Xinfeng Business Building at No. 16 Liuhe Road, Hangzhou.

Zhao Lei, Muzhi Gongfang's CEO, thinks home-decor apps such as Miao Shifu have already solved the "last thirty meters" problem for online brands, so a store's advantage over an online channel is not that large anymore. He did the arithmetic for us.

"If it's about driving traffic, going to trade shows around the country probably works far better for us than running our own store. Our Hangzhou showroom gets about 1,000 groups of customers in a whole year, but at the Shanghai furniture fair, say, maybe 10,000 people a day walk past my booth, and I can hand out more than 2,000 brochures in a day — that can replace a physical showroom entirely. So if we do build a store, it has to be for showing the brand image, it has to be in a first-tier city, and it can't be too small. If it won't work well enough, we'd rather not do it."

The furniture fairs held each year differ in clout, but between them they now cover the whole calendar and every region. The travel back and forth still strains a 36-person team like Muzhi Gongfang's. Zhao also plans to open a new 400-square-meter showroom this year, again in an office building, this time in Hangzhou's Liuxia area, designed like a show flat split into functional zones. Its main use is not display but making video and photographs for distribution online, in service of an interior-styling department Muzhi Gongfang has added beside its product-design and graphic-design teams — part of what it calls a "brand upgrade."

"Our target group is people born after 1985. They really don't have the time or the energy to work out how to put things together, so the market demand in the future should be in styling a space. This new showroom can be used to shoot panoramic video and do online show-flat presentations, so customers feel that buying our products will get them a good result."

That emphasis on the online channel has to do with how Muzhi Gongfang grew up. The brand first built word of mouth and a customer base by pulling traffic from social media like Douban and Weibo, catching the traffic dividend of those years. Since then its average order value has risen from 600 yuan to 6,000 yuan, and its materials have moved from plain beech and ash to black walnut with marble. Gross margin has reached 50%, net margin 20%.

The Meaning of "Omnichannel" Actually Lies Outside the Channel

One interesting thing: not one of the online brands we interviewed showed any hesitation about whether to open a physical store. What puzzles them is how to get full use out of it, and how to fit it together with their marketing online.

Opening a store is in fact a sizable outlay. Yang Xili told QDaily that Zhiyin's investment in the Shanghai and Beijing showrooms ran more than ten times the cost of setting up online. Zhao Lei simply listed the numbers for us: rent on Muzhi Gongfang's old showroom is 300,000 yuan a year, with 400,000 yuan in renovation; the new showroom's rent is 800,000 yuan a year, with 1.3 million yuan in renovation. Zaozuo and Indigo's leasing department declined to disclose the rent on the Beijing store, but according to public information, shop rent at Xingfuli runs 10 to 15 yuan per square meter per day, with a property-management fee of 18 yuan per square meter per month. By that arithmetic, Zaozuo's Shanghai store costs at least 1.44 million yuan a year.

Set against what it costs a traditional furniture brand to open a store, those figures are not high. Yang Xili told QDaily: "Our pricing and positioning were built from the start to skip the distributor, so both our store costs and our margins are lower than a traditional store's."

Che Jianxin, chairman of Red Star Macalline, made the same point in an article published in 2014, Where Is Traditional Home-Furnishing Retail Headed?. Under the traditional sales model, most distributors pay steep venue rent to get a mall's endorsement of the brand and a share of its foot traffic — rent that usually takes a quarter, sometimes a third, of the sale price.

Li Jianwei may be one of the brands Che was describing. He founded the high-end furniture brand HC28 in 2006 and has opened more than 50 stores in first- and second-tier cities. Because his buyers are "well-educated middle class over 30," and the brand sits at high-end furniture with an average order around 100,000 yuan, his standard for a store is "the best mall and the best spot in every city," at no less than 300 square meters whether the store is company-run or a distributor's. He could not give figures, but he told QDaily that with property prices and labor costs up across the board, rent has climbed a lot over the past decade while foot traffic in the malls has fallen.

"One reason is that the number of malls has shot up. Another is that selling outside the store — getting into property developments, for instance — and selling through designers have become more and more important. The designer has become a sales terminal, and that dilutes the traffic to the store. The idea of retail has changed. You used to be able to mind the store and do business; that model is hard to keep up now, and you have to go out and sell."

For brands like Zhiyin and Muzhi Gongfang, the built-in advantage was always making a name and winning loyal customers through marketing and traffic online. So there is no reason to spend extra money leaning on distributors and traditional furniture malls; they can choose freely among office buildings, cultural-creative districts, shopping centers and the rest, according to what they need.

Beside the increasingly eye-watering price of traffic, a store also looks like better value. Yang Xili and Zhao Lei buy almost no direct advertising or promotion online, and Zaozuo would not disclose what it spends on ads. But in a recent report by 36Kr, Gong Jiele, COO of Haiwan.com, said traffic prices had risen another 30% this year, and the founder of another travel company said that in the first half of the year, buying traffic cost as much as 5 to 6 million yuan in a month at the peak.

Zhao Lei sees no need to spend that on traffic. "We have no dedicated promotion budget online. Online and offline can't be cleanly separated for a brand — WeChat, Taobao, Tmall, Weibo, the website and the offline marketing events are all connected."

Yang Xili's explanation is that she doesn't want to move too fast. "Even IKEA has been cautious about e-commerce. Small fry like us have all the more reason to go one step at a time… How could a design brand possibly be finished in three or four short years? If you compare it to filling a bottle, I'd rather put the sand and the stones in first and the water last."

A more important reason may be that these brands, in business anywhere from two or three years to six, are already past the stage of needing traffic badly. The next task is working out how to turn traffic into money, getting the fans they have gathered to spend, and to spend again — which points back to an old problem that may need a physical store to solve: how to make service and experience better.

Mr. Xia, around 40, who owns several rental apartments, told QDaily that after he bought a Zaozuo sofa he was pulled into a WeChat group. Zaozuo runs four or five of them, about 200 members each; staff post news of products and events, and members give feedback on the products and trade notes on decorating. "It's something like a community for keeping ties with fans and handling after-sales service." Some group members were invited to Zaozuo's opening this way too.

Linking the two is on Zhao Lei's mind as well. "Against the actual number of visitors, the investment in a physical showroom is on the heavy side. But an offline showroom doesn't serve only offline customers; it can serve every online customer digitally too. The trend ahead should be online and offline as one, thinking through every channel where a customer touches the brand and building a whole strategy."

Nobody has worked out which kind of "integration" works best

The brands we interviewed link online and offline in two customary ways: printing QR codes into store catalogues and event posters, leading to the website, the Taobao shop or the official social accounts; or working with other physical spaces — Zhiyin with the Gala café, Zaozuo with the restaurant Feast, Lost & Found with MUJI, which hosted a "Sitting and Mortise-and-Tenon" show in MUJI's Shanghai and Hangzhou stores.

Traditional furniture brands and malls are testing the same integration. Li Jianwei has been watching what Zaozuo, Zhiyin and Muzhi Gongfang do. What interests him is not where these stores are, how they look or how they display goods, but how they join online to offline.

"Their operating model in particular is nothing like ours. We're still fairly traditional, built on physical stores, with no sales or promotion online. But the core question for us isn't whether to open an online sales channel; it's how to open it, in what way, how to balance online against offline so that one plus one comes to more than two. We have to protect our offline distributors — they pay rent and wages, they have to make money — and at the same time find a way online that brings them more traffic and more business. That's the opening we need to find."

Traditional furniture malls are hunting for Li Jianwei's opening too. Both Red Star Macalline and Easyhome have made moves lately. Easyhome has launched a platform called Designer Home, meant to pull together furniture and materials procurement, construction and logistics across its 140 stores nationwide. Red Star Macalline has announced a "1001" strategy: offline, 1,000 city home-furnishing shopping plazas, run directly or under management contracts, pushing down from first- and second-tier cities into the third, fourth and fifth tiers and into major county seats and towns; online, a new internet platform offering five lines of business — property, home renovation, goods, services and finance.

But next to those small, nimble furniture brands, what the big malls are doing could easily turn out to be loud thunder and little rain: long on concept, hard to carry out. Like a traditional department store, Red Star Macalline is in the business of renting out floor space, and coordinating brands and service inside that model is, as you would expect, difficult.

For the online furniture brands still finding their way, the question of joining online and offline may come back in the end to details: how to use their own sales data to forecast shipments and shorten delivery times, how to price, how to control the pace of production and lower management risk, how to make after-sales service faster and cover more cities.

All of which, at any rate, is convenience consumers are glad to see.

Cover image: goodpasturefarm, South China Morning Post