With its home textile output posting a record high in 2005, Chinese textile producers should be riding high. In reality, an overcrowded field of manufacturers means many are suffering, with some unable to keep even Chinese consumers from leaving them for foreign alternatives.
Last year, home textile production accounted for 160 billion yuan (US$20 billion), or 29 per cent of all textile-related products, which generated 545 billion yuan (US$68.3 billion). But with so many players in the market, keeping customers loyal has proved difficult.
The situation has forced many local home textile producers to embrace a more aggressive approach to branding.
"Selling home textile products is becoming more and more complicated, as good quality and a reasonable price is far from enough," says Zhang Wenxin, deputy general-manager with A-Fontane Fabrication Industrial Co Ltd, a Shenzhen-based home textile company.
To get ahead of the competition, Zhang is looking to television. He says the company will be putting up large sums of cash to bid for next year's China Central Television (CCTV) advertising.
"Beer, clothes, shoes, diary products, and even edible oil are showing up on screens," he says. "Why not home textile products?"
It's a strategy that only few others are trying. But historically, A-Fontane has won many of its battles in the textile industry.
In 1975, the company started home textile manufacturing in Hong Kong, often topping the sales list and enjoying an enviable reputation in the region. In 2005, it shifted its focus to the mainland market. The reason, according to Zhang, was its "amazingly huge potential."
So far, it's been a wise decision. With Chinese people's stronger consumption power and higher quality of life, China's home textile market is trending upward.
Industry analysts expect the output volume of home textile products will surpass 300 billion yuan (US$37.5 billion) in 2006, and that the annual rate of increase will surge to 20 per cent by year's end in 2010.
Furthermore, the average consumption on home textile products in China is merely 7 per cent of that on clothing, but in developed nations, money put into the two items are almost the same. In China, a one-point increase in the percentage would bring in sales of more than 30 million yuan (US$3.75 billion).
Those numbers are helping companies such as A-Fontane. Last year, the firm's sales hit 600 million yuan (US$75 million), half of which came from the mainland. "We expect to increase sales by 50 per cent this year and even more in the future," Zhang says.
Currently, there are as many as 20,000 local companies involved in home textile manufacturing and selling. The majority of them are small, with annual sales of less than 20 million (US$3.75 million) or even less.
"Chinese customers are still very price-sensitive," Zhang says. "As a high-end product manufacturer and a latecomer here, A-Fontane cannot stand out immediately from the intensified price war created by the thousands of small potatoes."
"Even the industry giants get frustrated," he says. "The highest market share for a company in the sector cannot be more than 5 per cent, and the average profit is less than 6 per cent."
It's with this unpleasant backdrop that A-Fontane has decided to start advertising on venues such as CCTV, instead of merely betting on product quality.
CCTV, the country's largest network, has helped a slew of companies at home and abroad create revenue miracles, and is said to be the most valuable channel for brand promotion.
Success through branding
Despite current challenges, Shanghai Luolai Home Textile Co Ltd (Luolai) should continue to be another big beneficiary of the home textile market.
Established in 1999, Luolai has grown from a no-name firm into a top national home textile brand in just 16 years. Annually, the company puts 3 per cent of its sales revenue into research and development (R&D) to create innovative products.
Analysts believe Luolai's success comes not only from its continuous efforts on R&D, but more importantly, its big investment in successfully inviting Michelle Lee, a well-known film star, to represent Luolai's products. Since the end of 2004, Lee has promoted the product on many CCTV channels.
"Lee's reputation in China makes customers and TV watchers keep Luolai in mind," says Xue Weicheng, president and founder of Luolai. "They connect Lee's beauty, elegance and nobleness to Luolai's products."
Luolai is not alone. Shenzhen Fuanna Bedding Co Ltd (Fuanna), a major local brand, followed Luolai's lead early this year. In February, Yang Liping, a local top-level dancer and artist accepted an invitation from the company to act as its corporate image ambassador.
"Yang and Fuanna's products are a good match," says Liu Hongwei, director of Fuanna's branding department. "We hope such branding initiatives give a stimulus to our business."
Expanding network
For Zhang from A-Fontane, advertising on CCTV to gain brand reputation is not enough. "We will have to expand our sales networkto make sure A-Fontane products are available for potential consumers around China," he says.
Currently, A-Fontane has 300 chain stores. Most are in South China's Guangdong Province near Hong Kong. Early this year, it plans to expand its network to Southeast China and Southwest China thanks to its similarity to Guangdong in consumer habits.
"We saw sound business in the first half ending June with a 60 per cent increase in sales," Zhang says. "Annually, we will have 100 to 150 more stores in China to cover more consumers and to fend off competitors."
Shanghai Luolai has 600 chain stores in China's 250 cities, and is expected to increase that number by 40 per cent every year.
Founded in 1994, Fuanna seems to be quicker and more aggressive in expansion. It has more than 1,000 stores in China and the US, and has enjoyed a 50 per cent expansion rate.
Challenge from outsiders
While Chinese brands keep fighting head to head for a bigger slice of the market, international home textile brands have also entered China in the last three years.
France-based Yves Delormes, a worldwide brand founded in 1845, made the first foray into China in 2003 by opening a store in the China World Shopping Mall.
Australia-based, Sheridan, which has a strong reputation in the US and EU entered China in September, 2004.
By December, a young fashion brand from France named Saint Marc also landed in China.
The multinationals were eager to learn about the market and partnered with local industry players to utilize their marketing skills, sales networks, and local knowledge. Sheridan and Saint Marc signed on with Luolai as their agent in Asia Pacific and China.
"I don't think (the foreign firms) can pose a great threat to us now," Zhang of A-Fontane says. "But we should step up efforts to enhance our branding and promote the reshuffle of the industry."
Zhang believes that the reshuffle will take at least five years, meaning a prolonged pricing war.
Hu Lansheng, deputy general-manager with the marketing department of Fujian Jalice Home Textile Co Ltd (Jalice), is more upbeat. "The industry reshuffle will happen in three to five years," Hu says.
For Zhang, the most efficient way to squeeze out low-end home textile manufacturers is for the big players to also be involved in the low-end market.
In 2004, Fuanna and A-Fontane introduced the low-end sub-brands Sunflower and Trend. Hu says Jalice will also introduce a sub-brand this year.
"We've started to vie against those low-end playersand will eventually force them to phase out," says Zhang.
The average price of a Trend-series product is 500 yuan (US$62.5), compared with that of A-Fontane which is more than 2,500 yuan (US$312.5).
"What we Chinese major players would like to do most is similar to those international brands," Zhang says. "We want to focus on a specific product and take a firm foothold of the market. This will not take very long."
