Huaan: The home industry is shifting to the "real estate post-cycle manufacturing track" and design has become an important DRIVE.

Huaan released a research report stating that the home furnishing industry is transitioning from the 1.0 era to the 2.0 era, shifting from the "growth consumption track" to the "real estate post-cycle manufacturing track", which is determined by factors such as real estate cycles, category penetration rates, channel structures, and company market share. As a post-real estate cycle industry, it is highly correlated with commodity sales and completion area. Since 2021, the bulk business model has been severely damaged. Emerging home furnishing consumption scenes such as integrated stores, community stores, elderly-friendly stores, and renovation stores continue to emerge, shifting from selling products to selling solutions as a new traffic entry point, where design becomes an important driver. Key viewpoints from Huaan include: - The valuation center of the home furnishing sector has shifted downward from the "growth consumption track" to the "real estate post-cycle manufacturing track". - Looking back at the changes in the valuation levels of the home furnishing sector over the past 10 years, the overall valuation of the home furnishing sector was at a historical high of 44x in 2017 for home goods, before continuously moving downward, reaching a historical low of 19x in 2024. Valuations slightly recovered in 2025-2026, but still remained in the 30-40% percentile range over the past ten years. The essence of the valuation difference in the home furnishing sector from 2017 to 2026 lies in the industry's transition from the 1.0 era to the 2.0 era, from the "growth consumption track" to the "real estate post-cycle manufacturing track", jointly determined by factors such as real estate cycles, category penetration rates, channel structures, and company market share. - Real estate cycle: From "positive driving" to "negative dragging". The home furnishing industry, as a post-real estate cycle industry, is highly correlated with commodity sales and completion area. In 2017, the government increased the issuance of mortgage supplementary loans, driving the monetization of shantytown reconstruction, and in 2017, sales of commercial housing reached a historic high. Home furnishing consumption lags behind real estate sales by 1-2 years, with high performance certainty, and the concentration of real estate enterprises accelerates the active development of bulk business for home furnishing companies. Currently, after 2017, the real estate industry entered a period of strict control. Starting in 2022, real estate sales area continued to decline, with a 48% decrease from 2017 to 2025, and completion has been under continuous pressure, further transmitting to home furnishing consumption. In addition, starting in 2021, the debt crisis of upstream real estate customers led to bad debts in receivables, severely damaging the bulk business model of home furnishing companies. - Channel structure: From "store dividends" to "fragmented traffic". In 2017, consumer information sources were relatively limited, with well-known KA stores such as Home Inn and Red Star Macalline Group Corporation being the core channels and scenes for home furnishing consumption. The channel model rooted in stores, distributors as the main channels, and direct stores as supplements was the mainstream in the home furnishing industry, with over 80% of transaction volume coming from natural store traffic, making it relatively simple and efficient for distributors to acquire customers. Home furnishing companies added 400-1000 stores annually, expanding into third- and fourth-tier cities to enjoy the channel blank dividends. Currently, various pre-flow entry points (community marketing, neighborhood customer acquisition, internet customer acquisition, etc.) are causing significant impact on home furnishing stores and physical stores. Stores are no longer able to serve as a single prominent traffic entry point as in the past, with traffic becoming more diversified and consumption behavior becoming fragmented. Starting in 2024, the annual data for new stores added by home furnishing companies has shifted from a positive trend to negative. On the other hand, emerging home furnishing consumption scenes such as integrated stores, community stores, elderly-friendly stores, renovation stores, etc. continue to emerge, shifting from selling products to selling solutions as a new traffic entry point, where design becomes an important driver. Risk warning: Risks from intensified industry competition, risks from changes in channel preferences, risks from rising raw material and component prices and delivery, risks from the level of easing of US-China trade frictions being lower than expected, and risks from exchange rate fluctuations.