Artificial Intelligence
Wardrobe channel sinking need to be cautious
Urbanization is often seen as the last hope for the real estate industry by many housing enterprises. However, with China’s aging population on the rise, the future labor supply is expected to shrink, and the overall household savings rate will likely decline, which in turn affects purchasing power. This suggests that true urbanization must go hand-in-hand with structural reforms. Over-expanding cities could lead to an increasing number of unsold homes, resulting in more "ghost towns." In response, wardrobe companies are being forced to rethink their distribution strategies and closely monitor market conditions before making decisions.
The purchasing power in second- and third-tier cities has come under scrutiny, with frequent appearances of "ghost towns" becoming a common issue. Looking at the current wardrobe market, first-tier cities are already saturated, dominated by a few international or domestic big brands. As a result, "channel sinking"—expanding into lower-tier cities—has become a common strategy for many domestic companies. However, recent trends show that this path isn’t always smooth. Some furniture brands are now reversing course, moving back to first-tier cities instead of staying in second- and third-tier ones.
At the start of this year, China's real estate investment growth slowed down significantly. The total real estate investment reached 795.6 billion yuan, marking a 3.5 percentage point drop compared to the same period last year. Meanwhile, commercial housing sales increased by 49.6% year-on-year, but these gains were largely concentrated in first-tier cities. In contrast, second- and third-tier cities saw a sharp decline in both new housing starts and real estate development investment. Many developers have intensified their marketing efforts, using slogans like "zero down payment" to attract buyers, reflecting the bleak state of the property market.
When houses remain unsold, consumer demand naturally decreases. This highlights the challenges behind the previous push for "channel sinking," which may stem from a lack of market understanding, outdated information, or misaligned market strategies. Chen Jiayi, a representative from the Shenzhen Furniture Industry Association, pointed out that while first-tier cities like Shenzhen face intense brand competition, expanding to second- and third-tier cities still carries significant uncertainty. High pricing makes it hard for local consumers to accept, and local brands struggle with high promotion costs. As a result, wardrobe companies must carefully reassess whether to stay in major cities or expand further down.
Sinking channels comes with its own risks, and many wardrobe companies are beginning to realize that the market isn't as straightforward as it once seemed. Whether due to a cooling real estate market or reduced consumer spending power, the potential of second- and third-tier cities isn’t as promising as initially thought. The success of wardrobe companies depends on their ability to align with specific consumer needs and find innovative solutions. No matter the city tier, products that truly resonate with consumers' psychology tend to thrive.
From the 29th Shenzhen International Furniture Fair, it became clear that custom design isn’t always suitable for second- and third-tier markets. An Italian furniture company launched a platform connecting interior designers, developers, and consumers, offering Italian-style home designs. Yet, most consumers only watched the events without signing contracts. This highlights the gap between high-end design and local consumer expectations. In many smaller cities, people's lifestyles and preferences remain traditional, and they take time to adapt to new ideas. Custom wardrobes, although unique, are often too expensive and carry some risks, deterring those who aren't willing to spend much. Most prefer ready-made options that are affordable and practical.
Therefore, when a wardrobe company decides to "sink channels," it must first understand the lifestyle habits of its target consumers and tailor its marketing strategy accordingly. Blindly following trends without a clear direction can lead to confusion and loss of focus. In a rapidly changing market, wardrobe companies must stay informed about industry developments and continuously adjust their strategies. By combining effective production with smart marketing, they can achieve better results with fewer resources.
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