The Furniture market in 2020The year 2020 is a long time in “human time” but tomorrow in “economic times”. Foresee the future is pure hardscience. To ride the wave of change successfully organisations must apply a fine-grained approach when theyread megatrends. They must study economic and cultural megatrends and build scenario to foresee the impactson micro-markets and segments of the Furniture industry, so you can invest in confidence and, above all, act onthem! We have analysed tens of megatrends and have tried to capture the essence of the foreseeable changesthat may impact either the manufacturing or the retail end of our industry in the next 10 years. From Economy toculture, we have looked at what will contribute to change our lives tomorrow. To demonstrate what that approachlooks like in practice, let’s take the example of one of the important megatrends we have analysed, ageingpopulation in western countries, and looked at what it will do in terms of economy. We found that health care willgrow more quickly than it did before and so will grow the furniture industry related to health care or ageingpopulation, despite a decline of the overall furniture market. As an example, Dreams plc, a UK based bedmanufacturer and distributor sees opportunities to sell a variety of different bed types to elderly consumers,including powered and adjustable beds that sell at a higher price than traditional beds.Also suppliers that will enhance the user experience and functionality by paying attention to the requirements ofthis market segment will reap the benefits of its niche strategy. For the “do-it-yourself”, an ageing population maymean one that buys more high-margin “do-it-for-me” services rather than low-margin VETA or RTA products only.While the global market for furniture in European countries may decrease in volumes globally, organizations thatwill make informed decisions will continue to gain market share in dollars revenue. Capitalizing on megatrends tocapture growth opportunities will help organizations to make better strategic decisions and better resourceallocation.1-What will be the relationships between the United States, the EU, China and India in 2020 ?The world economy will be 2/3 bigger in 2020 than it was in 2005. Global GDP will grow at an average annual rateof 3.0-3.5% between 2006 and 2020. The United States will remain the world superpower, with a total GNP ofapproximately $17 trillion to $18 trillion and a growth of 3% a year compared with 2.1% for the EU27 and lessthan 1% for Japan. However, an economic survey released in September by the US Federal Reserve seems tobe more pessimistic about the expected annual growth. The growth expected may be comprised between 2.5%and 3.0% for the decade, a growth without significant job creation and a brand new situation for the US market.The United States will remain the most important country in terms of all the dimensions of power as result of thesize of its GDP, its military might, internal cohesion and persistent technological lead.The US$ will remain the key international reserve currency. Europe will continue to lack the cohesion to achieve
superpower status. The transatlantic economic relationship will remain the most important globally, but its relativeimportance terms of trade, investment and share of global GDP, will fall as Asia’s rises.The share of the European Union and the United States in world income will stay about the same in 2020 as it isin 2010. The US will maintain one of the fastest growth rates in the industrialised world, thanks to its dynamicdemographics. The EU will make up for a slower growth through territorial expansion, growing to a club of 30countries approximately. Propelled by fast growth in China and India, Asia will increase its slice of world GDPfrom 39% in 2010 to 43% in 2020. China in particular, will increase its share of the world GDP from 16% today to19% joining the club of the leading economic blocs. But it will be too soon to talk of Asia’s century. On a per-capita basis, China and India will remain far poorer than western markets and the region faces a host of downsiderisks. In general, Asia will narrow the gap in wealth, power and influence but will not close it.From a geographical stand point, the greatest growth opportunities, between now and 2020 lie to Non OECDcountries. The emerging markets particularly China and India will provide significant opportunities over the nextdecade. By 2020, China will match the United States as the world largest consumer markets. Measured atpurchasing power parity index (1), China will have closed the gap with the US by 2020. There is 12 millionChinese households today with annual incomes greater than $7,500; By 2020 there will be at least 80 million.However, although China’s middle class could make up as much as 40% of its population by 2020, double fromwhat it is now, it is still well below the 60% share in the US. Income levels will still lag well behind those of maturemarkets, limiting growth in mid-market segments. Global retail companies have recently begun to pay moreattention to India as the increasing number of urban consumers has sparked a mini consumer boom. Unlikeconsumers elsewhere in Asia, Indians appear more prepared to spend than to save. There are now some 300million middle-income earners making $3,000 to $5,000 a year with strong desire to resemble to consumer of thewestern countries. However, India’s consumer boom will be constrained by low average incomes and restrictionson foreign investments in the retail sector. In Europe, Eastern Europe and Russia also offer expansionopportunities right in Europe’s backyard, an advantage for European companies compared to US ones that haveto cross oceans to penetrate new markets.2-Cultural TrendsGlobalizationThe globalization and networking technologies will enable companies to use the world as their supply base fortalent and materials. The pace and extend of globalisation will be the most single important determinant of worldeconomic growth. If protectionism were to take greater hold, the consequence for the world would be substantialand adverse. The prospects for faster liberalisation are constrained by the fact that the United States is nowbenefitting less than others from increased globalization.UrbanizationWe will be 7.6 billion human in 2020, and the vast majority of us will live in cities. Population growth hasintensified the density of population in large cities and favoured urban sprawl to the detriment of quality of air,traffic condition and efficient use of land. According to a study of the UNO, 55% of the world population will live incities in 2020 compared to 29% 60 years ago. As a result, we will be living and working in increasingly smallerspaces.Environmental awarenessThe most important concern is environmental change, specifically climate change. It will affect every aspect of ourlives, rich or poor, like access to water, food and health. We will increasingly be aware of our carbon footprint, andthe effect of our style of living has on the environment. Some plants developed to aid clean air production will beset for a move indoors, while, elsewhere plants could be used to clean water to enable greater recycling of theprecious resource. In an effort to increase energy efficiency, much of the heat in the Intelligent Home orworkplace will come from solar thermal energy and recaptured heat from generators. Daylight sensors and
occupancy sensors mean lighting isn’t used when it’s not needed, but workers are also given a huge amount ofcontrol over their own environment, regulating air temperature and flow, and lighting levels and direction, fromtheir own work station. We will improve our quality of life at home or in the workplace while reducing greenhousegas emissions.Open-space DesignAs we will be living and working in increasingly crowded cities and smaller spaces, rooms will become multi-functional. Already today, a major theme of many design concepts is the integration of different rooms. We willsee a notable move away from the idea of separate bathrooms and bedrooms. Kitchens will remain the hub of thehome. From revolving benches to plant-filled and portable kitchens, there are some potentially radical new ideasfor the future of our rooms.CollaborationThe advent of laptops, wi-fi and BlackBerries means that high-tech workers are no longer tethered to their desks,and the office of the future will be designed to let workers roam. As businesses are coming to realize that the bestideas are often generated in casual conversation, designers will increasingly incorporate informal team areas intooffice environments, to encourage chance encounters and impromptu meetings. And, as this effort is made tobetter utilize the diminishing personal living space we have.Cultural diversityFinally, increasing waves of international migrations will mean that urban areas in all parts of the world willbecome more multicultural. People from different ethnic, cultural and religious backgrounds now live together incities. Cultural diversity will have important impacts for identity of a city and how built environments are managed.Cultural mix will pace new demand on urban planning to mediate between conflicting lifestyles and expression ofculture. Conflicts around religious building, burial arrangements, ritual animal slaughter and building aestheticswill need to be properly tackled. On the positive side, it will create a massive influx of furniture exports and importsand create opportunities on a global scale.3-How will we work in 2020?As velocity, relationship, customization and efficiency becomes more critical, employees skills will also need toimprove, especially when there is a problem to solve. In this chapter we will see how creativity, problem solvingskills, collaborative team work and relationship skills will see an increase between now and 2020SpecializationRunning an efficient organisation is no easy task but it is unlikely on its own to offer lasting competitiveadvantage. Products are too easily commoditised: automation of simple processes is increasingly widespread.Management skills, interpersonal relationship and problem solving skills are seen as the most important qualitiesfor employees over the next 10 years. These skills are particularly important in areas such as customer service,strategy and business development, knowledge management, where personal chemistry or creative insight mattermore than rules or processes. Improving productivity of knowledge workers through technology, training andorganisational change will be the major challenge for the next 10 years.CollaborationBy 2020 knowledge workers may find themselves sitting at the intersection of multiple collaborative workspaces,plucking needles from enterprise-haystacks, while being supported by teams of “software robots” that make themmore productive, just asmanual workers are assisted on assembly lines by power tools and robots. These workers of the future are alsolikely to seat down in organisations with very different structures. Increased collaboration will be a defining featureof the company of 2020. Whether it is suppliers interacting with vendors, salespeople with customers, employeeswith each other or companies with their partners, high quality relationship with outside parties will become moreimportant as a source of competitive advantage between now and 2020. We believe we will see a lot morecollaborative problem solving inside and outside companies. The real focus of management attention will be onthe processes that are the hardest or the least desirable to automate.With a new way of working will come a new way of managing. Supervisors will move away from keeping the team
working, dealing with things like time-keeping to take more operational and strategic decisions. Creating this self-sufficient workforce will not go without a challenge.CreativityAs said, the focus of management will be on innovation, customer service where personal chemistry or creativeinsight matters more than rules and process. As a result, emphasis will be placed on creativity, design, marketingskills, partnership management, all outward-facing and knowledge based skills.But improving the productivity of knowledge workers will prove to be far more difficult than anticipated. Whereasthe output of a manual worker can be measured in units per hour, measuring ideas per hour or e-mails per daygive little indication of actual productivity for a knowledge worker. A company needs a process that structures,improves and evaluates the creative process thoughts that flows freely through the company. Also, somecompanies are already taking steps to measure and manage so called “right brain” thinking. As an example, theyfocus on how the customers feel the whole experience of using the product rather than improving the features ofthe product. These are early examples of what we believe will be a long and lasting trend toward creativemanagement.“Exactly how to improve knowledge-work productivity is one of the most important economic issues of our time”observes Thomas Davenport in his book “Thinking for a living”. But perhaps the biggest challenge of all for themanufacturing end of our industry, especially in western countries, will be attracting people to the manufacturingsector, as long as this sector is seen as the poor relation.4-Will Google still dominate the world in 2020 ?The last 10 years have been dominated by the rise of Google and social networks, the surprising resurgence ofApple, and the gradual decline of Microsoft and Yahoo. While technology changes, people’s need do not. We willstill need to connect, exchange, compete and network.Social MediasAlready today 96% of millennials have joined a social network. Life online will alter the way we thinkimperceptibly. Our experience of private and public space and time will continue to change too. Facebook willhave long overcome Google as the preferred homepage for internet users, but it will also be our anchor whereverwe go. On our mobile phone, on our kitchen TV, our bathroom mirror in our home town or on the other side of theworld. Facebook will become the giant network that no one can escape: emails will disappear; Facebook will bethe universal Open ID. Or would that be QQ & Renren that dominate China’s social Medias landscape today?ContextualizationThere will be a further blurring of the spatial and temporal boundaries of work, home and travel. We will see anincrease in nomad workers with skills in service, knowledge and ICT industries. Mixed reality, Machine to machinecommunications, smart objects will concur to create the internet of robots. Build-in sensors like temperature, light,humidity sensors will be used to extend the reach of already existing online services by providing live informationabout where users are in space and in time. It will allow stores to create instant and personalized content for apasser-by based on his points of interest, but also, people to interact without requiring us both to be free at thesame time. V-commerce will replace e-commerce, with 3D-virtual equivalents of high street stores. We’ll neveragain buy furniture without placing the piece in its planned environment thanks to our mobile phone and the digitalcopy of our home.Augmented Reality“Augmented” Reality will use facial recognition and tracking technology. It will superimpose content and data overthe picture of a person seen through a camera lens. It will allow you to maintain different profiles for your publicpersona versus your private one, switching between them as desired. Each profile will be associated with contactdetails, web links, social networking profile and information about what are you searching for, “auto-tagged”.As you’re walking down the street, a Facebook-like platform will match your profile to stores near you and willcreate an alarm on your cellular phone if there is a match between a store and an “auto-tagged” product you
searching for.As an example, a person that is looking for a European style red couch with a price point of less than $1,500 willcome in your store. A picture is taken as he comes in, will be “augmented” with his profile and his “auto-tag”request. A sales person will then be able to take him to the section that matches his request and engage with himimmediately.Of course, implementing that type of feature will be a challenge, but not impossible. It will depend on thewillingness of the information provider to find the appropriate economic model. Also, people’s profile will need tohave their profile and “auto-tag” request up-to-date to make the information relevant.The application may sound a bit frightening at first, given its capabilities. However, the company that will developand market the application will need to protect and respects user’s privacy. It will also need to correlate itssettings with their Facebook page privacy settings. We think that the importance of this addition will lie in the factthat it will expand the concept of instant personalization. We have to wonder how long it will be until instantpersonalization becomes the default, rather than the exception.MobilityWe will have a single “number for life” which will follow us from home to home throughout our entire lives andacross the world. Mobility combined with the sensor economy will enable the concept of home Hub. Our homeswill have identity of their own separate from ours and will be fully connected. It will give access to unique content,applications or services that will enrich people’s lives in a tangible way. The “Digital Home Hub”, a personalized,Facebook-like, 3D identity of our homes will remains with us for the duration of our stay, will represent every layerof pertinent information that is important to our “home” world and will be carefully stored for us to share withfriends and/or to grant access to providers to enrich our lives or simply make it easier for us.5-The world of Manufacturing in 2020The globalisation of manufacturing has been the hallmark of the past 20 years. The transfer of jobs in themanufacturing sector from developed markets to emerging markets will continue over the next decade andbeyond. Despite the expected strong growth in wages in many emerging markets, the differential with averagewages levels in the developed world will still be enormous in 2020. In China’s case, the average wage will riseabout 15% of the US and EU15 level in 2020 compared to 5% now. The eastern members of Europe will riseabout one third of the EU15 average. It also implies that the competitive advantage of Eastern Europe comparedto Asian or Latin American emerging economies will be at risk, especially in activities where high transport costsdo not give the eastern countries a competitive advantage.Product & Process Innovation
Megatrends such as Demographic shifts, environmental awareness, urbanization, new urban lifestyle will have asignificant impact on our industry and will spur product and process innovation. As manufacturers seek tooptimise cost control, operational efficiencies, the answer for many organisations will be to disaggregate the chainof manufacturing processes into its component elements, some locally delivered, other centralised, and others amixture of both.Mass CustomizationSub-assembly plants or suppliers will be built in low cost economies in order to reap the benefits of long, simpleproduction runs, seek operational efficiencies while configuration-to-orders centres will be established in localmarkets. Generic, high volume manufacturing processes will continue to shift to lower costs locations, while finalassembly processes will often be localised near the end customer in response to rising demand forpersonalisation. Greater customization of standards design will be a central attribute of the 2020 manufacturers.Modular design will be critical tocompetitive advantage. While delivering manufacturing volumes, it will also enable rapid customization. `To conclude this section, a whole shift in manufacturing capacity is not on the cards in the next 10 years. Theattraction of low cost economies is much greater for some industrial sectors than others. Where products arelabour intensive, high volume and low transport costs, and the customer is price sensitive, like in the small homeappliances sector, low wage economies will have an advantage. Where volumes are lower and capitalinvestment, local design and regulation constraints and transport costs higher, like in the white goods sector,manufacturers will continue to settle within range of the end-market.5-Will shops even exist in 2020 ?The advent of convergence of several technologies raises the question how will our shopping experience be in 10years from now? Despite our provocative introduction to this section, we believe that technology is not the maindriver of changes for the next 10 years but the platform upon which retailers will build the customer experience.At the retail level, the benefits of further consolidation will reduce. Cost efficiency will be still critical but no longera differentiator as much as a cost of entry to a market. As an example, for Blyth Inc a $1.6 billion designer andmarketer of home decorative and fragrance products, “you reach a point where it is difficult to take any more outof costs”. Some other companies have already reduced their inventory to the point they operate on a negativeworking capital.Multi-channel marketing will experience growth as companies’ internet presence becomes more commonplaceand direct mailing strategies becomes more personalised and more effective. However, market saturation,channel conflict and margin compression will limit its potential in the long term.Are these strategies based on efficiency suited to a long term competitive advantage?Brand
Branding is one answer. Brand does and will increasingly stand for consistency in quality, value and image.Retailers are more concerned about decreasing loyalty than any other sector of the industry. Brand strength willbecome a more important of competitive advantage over the next 10 years. Many retailers will pursue brandextension strategies to drive home this advantage and increase their “share of consumer wallet”. In the US, Homedepot is piloting a format that involves adjacent gas stations and convenience stores based on the modelsdeveloped in France by Hypermarkets. In a globalised marketplace, brand strength will also be an importantsource of advantage and will keep smaller retailers from being disintermediated by the Wal-marts of the world.Personalization & ProximityBut regardless of their size, retailers will define a new dimension for generating a competitive advantage. Priceand quality will matter as much as ever, but customers will place more emphasis on personalisation. Product andservices will be customizable, leading companies to adjust their level of service depending on customer’spreferences and their importance to the business. At the retail level, this will manifest in differentiated shoppingexperiences and in increased customer intimacy. Virtual shops on the internet will capture the interest of customerand lead into visiting stores. Stores and in-stores service will be engineered to connect with the customer throughpersonalised customer service, attractive and easy-to-navigate store layout and specialisation of assortment.Thanks to technology, additional attention will be put on analysing results of the internet pre-sales process asmuch as promotions from direct mail campaigns and feed the information back to manufacturers. In the next 10years, customer relationship management will become more commonplace and sophisticated as retailers improvetheir data analysis and capture skills.The moment of product or service delivery will be increasingly managed, monitored and measured. Today,Dreams plc leaves fragranced sachets on its newly delivered beds, like a hotel leaves mints for its guests. Of allthe areas, the delivery especially must not be commoditised. A recent personal experience make me think thatretailers must take into consideration that consumers have increasingly busy lives and have no time tocompensate for the failure of the retailers’ after-sales process. Not only your service must irreproachable at thestore level but also during the delivery process if you want to keep your customer satisfied with your company.Retailers will need to replicate the same magic with suppliers as they do with customers. Retailers will need tomake the supplier buy into the whole mission of your company, not just take orders for furniture, so they candevelop a long term competitive advantage over their competition.Finally, Consumers will become part of an integral instantaneous feed-back loop to product development andservice quality through social networks. The word of mouth will become the most important source of referrals,higher than it is today, because the social Medias will have structured this human process.7-What does this all mean for us all ?Companies will be subject to a variety of centrifugal forces over the next 10 years. Outside suppliers will reachmore deeply into companies’ internal processes, increasing external dependencies. Revenues will becomediversified across new geographic markets, as will customers’ preferences.Employees will be spread across more territories. Head offices will look less uniform too as managers fromemerging countries will begin to fill top level corporate positions.Consumers will expect personalised service and will put a premium on the quality of local relationships.Technologies will grant them access to personalised promotions. All the elements combined will give them afeeling of uniqueness, a truly one-on-one relationship from prospection to after-sales that has been the holy grailof the retailers’ marketing departments.Because the flow and amount of information will become increasingly complex to manage both retailers andmanufacturers will need a system that will allow them to manage more complex data while increasing theflexibility required by consumers. Faster and better collaboration will be essential among all industry participantsto deliver on promise.Both manufacturers and retailers will require more flexibility from their software suppliers to provide them withsolutions that are affordable, scalable and platform agnostic. Cloud computing combined with Service-oriented-architecture will address these requests while allowing manufacturers and retailers to focus on the core of theirbusiness.
The future of selling will become increasingly polarized. Selling will either be relationship intensive or technologyintensive, depending on the strategic value of the customer. Low-value customers will targeted via electronicMedias services and features that track and analyse their buying history. Data mining and customer relationshipmanagement will be critical to succeeding in this automated, low cost channel. High-Value customers that need asolution sell that explains how the pieces fit together and consists largely of free consulting services mixed withsoftware tools. The sales cycle will be longer as the problems increase in complexity.At the data level, the absence of standards will continue to make the creation of data very expensive for furnituremanufacturers. The industry will need to promote the creation of standards so that data creation and delivery canbe automated.Non strategic, or commodity, supply relationships will be outsourced, offshored and automated processes. Thelevel of communication will need to increase at least tenfold between now and 2020 to support the requirementsin term of data exchange.As said previously, we believe that technology is not the main driver of changes for the next 10 years but theplatform upon which retailers will build the customer experience. However, technology will be the single best wayto increase the overall performance of the furniture industry. Whereas the focus of IT investments in the past hasbeen on improving internal administrative efficiencies, in the future such investments will increasingly focus onincreasing the efficiency of the relationship between suppliers and customers and, of knowledge workers. Indeedwe predict that investment in such technology is expected to dominate IT budgets, since both administrative andprocess requirements will have been met. The need for new ways to collaborate and communicate is the mostapparent and urgent need. What will be needed, are tools that will be more attuned to distributed, team-basedworking practices on the scale of the whole industry. The industry will need to adopt a platform which makespossible for thousands of customers and suppliers to collaborate efficiently on the design, production and deliveryof personalized projects to consumers. Remote technologies will be put to work enabling anyone to make inputsat a distance. The second area in which new tools will emerge, relates to the handling of unstructured data.Creating a communal repository of data, will be the first step towards an inter-enterprise, frictionless platform. Butthere is no point in having such a system unless a culture of collaboration and sharing will have already beenestablished.Once these foundations will be in place, it will become possible to deploy the third and mot speculative type oftechnology: systems that combine information from collaboration spaces, structured databases and unstructureddata sources to provide decision-support functions, some degree of automation and even a much thought afterdegree of artificial intelligence across the whole industry. Such software platform will not replace humaninteractions but will amplify their abilities.Even if all these emerging technologies were ready for deployment today, other hurdles would still remain. At themoment, all of this software is still delivered in old-fashioned, piece fashion. New ways must be developed tocombine pieces of software in flexible ways to suit the working practices of different companies and sub-industriespractices. Concerns such as data security, integrity, compatibility and costs will have to be addressed.Innovation in the next 10 years will be largely software driven. Companies like ours could morph into serviceprovider and integrator, serving the collaboration needs of the whole furniture industry. We would sellinfrastructure and intelligence to companies that will embed their software capabilities into the platform to providenew technologies, content and data delivery to the right user at the right time in the right place.Providing new services and content means either having to come up with new applications internally, or forgingand managing partnerships with others. The latter approach will mean an increased co-operation with all theindustry participants that have the goods and services to keep the customer satisfied at the speed required by thefurniture industry.The shift in the furniture industry also looks set to change the traditional relationship between manufacturers,retailers in one hand and suppliers of this industry on the other hand. As the platform standardizes rules andprocesses across the industry, that both manufacturers and retailers will outsource a greater number of low-valuetasks, they will become capable to focus on what will make a real difference in the eye of the consumer: