At the opening of Zaozuo’s first furniture store this month in Beijing, a shopper snoozed on a couch while others clambered onto wall-mounted shelves to take selfies perched in chairs.
Welcome to furniture retailing with Chinese characteristics.Online furniture startup Zaozuo Zaohua Zworks Ltd. opened the outlet in an upscale mall after hitting resistance from customers wary of buying bulky items without so much as a feel of the fabric, let alone a bit of shuteye.
Liu Yusi, a 33-year old human-resource executive living in Beijing, said the showroom is a good idea given that buying large pieces of furniture without a test drive can be a leap of faith, although she was a little disappointed there weren’t any beds on display. “Maybe the store is too small,” Ms. Liu said. “But I think a mattress is something you really need to lay on before you decide to buy.”
Zaozuo has tried to distinguish itself from competitors by letting customers vote on the design and style of furniture items at the prototype stage before they’re mass produced, a strategy it says reduces inventory and cuts cost. This is a Chinese adaptation of business models used by the likes of U.S. website Threadless.com — which conducts online polls of crowd-sourced T-shirt designs before producing winning entries – and by crowd-funding sites that have investors vote on ventures they’re willing to fund.
Zaozuo’s customers vote for the designs they’d like to buy. PHOTO: ZAOZUO, DON ARBOUR/THE WALL STREET JOURNAL
The approach has its skeptics. Guangdong Weiyuhua Furniture Co. says it thinks Zaozuo’s voting is a gimmick and questions whether selling furniture online is sustainable. “It targets a few rich people in cities like Beijing or Shanghai,” said company sales manager Li Songzhi. “Traditional furniture companies like ours have real stores all over China.”
With nearly 700 million online users, Chinese consumers are driving explosive growth in the e-commerce sector, undercutting traditional retailers and leaving new online ventures fighting for an edge. Zaozuo co-founders, Stanford business school graduates Shu Wei and Guan Zishan, say China’s struggling manufacturing sector needs a wakeup call as it battles rising debt and excess capacity.“
The old system is not working very well,” said Ms. Shu. “That was the starting point of our business model.”
One potential problem with the company’s voting system is possible voter fraud, says Travis Wu, China research director with consultancy Forrester Research Inc. “In China, everything is a bit tricky, and lots of people try to game the system,” Mr. Wu said. That could see designers tilt results toward their own models, for example, or allow competitors to steer Zaozuo into producing money-losing items, he said.
Another concern: with Zaozuo opening a showroom, it risks driving up costs and undercutting its advantage over traditional furniture makers. Mr. Guan says users must be registered before voting, the company watches carefully for unusual online activity and the new store is not a major investment.
Zaozuo, which attracted several thousand curious shoppers to its store launch on a recent weekend, sees itself inhabiting a competitive space between expensive designer brands and mass marketers like Sweden’s IKEA, a company that attracts its share of showroom lounge lizards. On any given weekend, entire families can be found snoozing on beds in Ikea’s massive showrooms, luxuriating in the air conditioning and enjoying the inexpensive food.
China’s fragmented furniture industry with around 5,000 large companies and combined revenue of 244.5 billion yuan [$37.3 billion] in 2015, up 16.1% increase from the previous year, is tradition-bound and due for a shakeup, say online companies. Internet furniture companies only command a tiny slice of the market but are growing rapidly. Privately held Zaozuo said sales are increasing by 40% annually although it has yet to break even. MZGF Furniture Studio Co., another online firm, said sales have been expanding by as much as 200% year on year in some months.
Zaozuo, which works with 50 Chinese factories and more than 80 European designers, has attracted $17.5 million in venture funding and hopes to eventually go public. Anna Fang, chief executive of venture capital group Zhen Fund, which has invested $1.3 million in Zaozuo, said prospects for the industry are promising but the startup may need to shorten delivery times, which range from three to 35 days. “Ikea can get furniture to you right away,” she added.At its store opening, Zaozuo said it tried to discourage shoppers from getting too comfortable on its furniture. “The customer might be comfortable, but the image is not that good for other customers who can’t feel the fabrics if someone’s sleeping on it,” said Mr. Guan. “Maybe they do it because they’re tired. Shopping can be very tiring.”