Increasing prices affect the home decoration & home textiles market

The COVID-19 pandemic and the war in Ukraine are increasing the costs of raw materials, energy and transport. These cost increases are forcing businesses in the home decoration and home textiles (HDHT) sector to raise their prices. At the same time, consumers are becoming hesitant to spend money. This combination may lead to increased competition.

Consumer prices increasing

Price increases are a popular topic in today’s market. HDHT product prices heavily depend on the costs and availability of raw materials, energy and transport. The COVID-19 pandemic and the war in Ukraine have had a negative impact on all of these. Occasional cost increases are not usually directly passed on to the consumer. Instead, the cost increases put pressure on the margins of exporters, importers and retailers.

The current disruptions have resulted in longer-term cost increases. In January-February 2022,  important HDHT stakeholders estimated that their costs were 19% higher. Since then, costs have increased even more due to sanctions against and by Russia, among other things. Because of the continuing pressure on their margins, many HDHT businesses are increasing their prices. This also means that consumer prices are rising. For example, Dutch consumer prices for furniture and home decoration increased by 10% between March 2021 and 2022.

More competition in the HDHT market

The European HDHT market is divided into 3 segments:

• low-end – inexpensive, functional basics;
• mid-end – affordable, trendy items;
• high-end – premium-priced statement pieces.
   

In recent years, the mid-end market has been under pressure. European consumers often look for low-end bargains or save up for higher-end purchases. But, increasing prices can push low-end products towards the mid-end. Also, shipping costs have increased to record highs since the start of the pandemic. The margins on low-end products are too low to accommodate for extra costs. This may mean that these items become too expensive to ship, especially if they take up a lot of container space. This makes the mid-market more attractive.

At the same time, European consumer confidence has fallen to historic lows due to the war in Ukraine. This low confidence shows a drop in consumers’ expectations about their country’s economic situation and their own future financial situation. It also means that consumers are not willing to make major purchases. This makes them likely to delay large HDHT buys. And when they do spend money on HDHT items, they may prefer affordable alternatives to high-end options. As a result, competition in the mid-end market may increase.

Eastern European countries are strong competitors in the mid-end market. They are close to the market, meaning they can offer cheaper and faster delivery than many exporters from developing countries. Due to the high transport costs, some importers may buy closer to home. This could further increase competition.

How to compete in the mid-end segment

You need to be aware that consumers expect added value for their money in the mid-end segment. Take this into account if you have changed your target segment to compensate for increasing costs.

To successfully compete, you must meet consumer standards on characteristics such as design, trendiness and sustainability. Combining shipments with fellow exporters in your area can lower your transport costs. For more information about the mid-market and how to appeal to these consumers, see our study on market channels and segments in HDHT.

Globally Cool B.V. wrote this news article for CBI in collaboration with GO! GoodOpportunity and Remco Kemper.

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