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In the winter of last year, the home and building materials distribution industry faced an unusually tough season. As the new year began, Oriental Home, one of China's largest home building materials chains, shut down five stores in Beijing. This was not an isolated incident—major players like Home Depot and Bai Anju, a subsidiary of the UK’s Kingfisher Group, had also started closing stores as part of a broader trend.
Since the government introduced real estate control policies, the home furnishing and building materials sector, which once thrived on the rapid expansion of the property market, has been struggling. However, challenges often bring opportunities. By the second half of 2012, the real estate market began to recover from its self-adjustment phase, and signs of improvement were emerging.
Qin Zhanxue, deputy president of the China National Building Material Distribution Association, emphasized that this is a crucial time for the building materials industry to seize the opportunities brought by urbanization and real estate transformation. Companies should adapt their formats and product structures according to market demand to find new ways to survive and grow.
Zhang Yuxiang, secretary-general of the China Building Materials Enterprise Management Association, pointed out that the problems at Oriental Home were long-standing, with financial strains and unresolved disputes with distributors contributing to its decline. Internal management issues and a deteriorating competitive environment further accelerated its downfall. He also noted that this wave of store closures reflects deeper industry-wide issues, particularly excessive expansion.
"The tide will recede and you’ll see who’s naked," he said, echoing Warren Buffett’s famous quote. According to data from the National Building Materials Home Furnishing Index, sales in 2012 fell significantly compared to the previous year, with some segments declining by over 10%.
Zhang highlighted that in cities like Beijing, the density of building materials stores is too high, leading to inefficiencies. Many stores are spread across multiple markets, increasing operational costs and making it harder to stay profitable during slow periods.
The impact of real estate regulation has been direct and severe. A Beijing-based merchant recalled how the market used to be booming before the policies took effect. Now, the industry is hoping for a turnaround but remains uncertain about the future.
Additionally, the rise of fully-fitted housing is reducing demand for traditional building materials. In cities like Guangzhou, up to 70% of homes are now sold fully equipped, and this trend is growing in first-tier cities. As a result, the demand side of the market is shrinking.
Qin Zhanxue suggested that the industry must align with changing demands while controlling production capacity. He warned against over-investment and stressed that small, localized building material stores may be more sustainable in smaller cities. The government should tailor investments based on local needs rather than expecting widespread growth.
Product selection is also key. With the popularity of fully-furnished homes, specialized stores are becoming more relevant. Customers are increasingly looking for specific products rather than shopping at large general stores.
Zhang Yuxiang added that brand development is critical in a depressed market. Many Chinese building materials companies have a wide range of products but lack strong branding, leading to overcapacity and slow industry growth.
Some companies are already adapting. For example, Gao Qingpeng of Shandong Jinjing Energy Saving Glass Co., Ltd. plans to focus on high-value energy-saving glass and reduce low-end products due to rising costs.
Zhang also emphasized that eco-friendly and energy-efficient building materials are the future, backed by government support. Innovation is essential for companies to remain competitive.
For those exploring e-commerce, Zhang noted that the model is still in its early stages, with challenges such as quality inspection, after-sales service, and legal frameworks needing further development.