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In the winter of last year, the home and building materials distribution industry faced an unusually challenging 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 case—retail giants like Home Depot and Bai Anju, a subsidiary of the UK’s Kingfisher Group, were also struggling with store closures. Since the government introduced real estate control policies, the home furnishings and building materials sector, once thriving on the rapid growth of the real estate market, has seen a sharp decline.
However, challenges often bring opportunities. Starting from the second half of 2012, the real estate market gradually recovered after a period of self-adjustment and transformation. With this improvement, many are wondering if the home building materials industry, which is closely tied to real estate, will soon see a revival.
Qin Zhanxue, deputy president of the China National Building Material Distribution Association, recently told reporters that the industry should seize the opportunity brought by new urbanization and real estate transformation. He emphasized the need for companies to adjust their formats and product structures according to market demand, seeking survival and growth through innovation and upgrading.
Zhang Yuxiang, secretary-general of the China Building Materials Enterprise Management Association, pointed out that the issues facing Oriental Home have been long-standing. The company had persistent financial strains and unresolved disputes with its distributors. Additionally, internal management changes and an increasingly competitive external environment accelerated its downfall. However, he noted that this wave of closures highlights deeper problems within the entire industry—excessive expansion. As Buffett once said, "When the tide goes out, you can see who's swimming naked." The BHI data from the Ministry of Commerce and the China Building Materials Circulation Association showed that in 2012, sales of large-scale building materials stores fell by over 10% compared to the previous year.
Zhang also highlighted that in some Chinese cities, the number of building materials stores is too high, leading to oversupply. In Beijing, for example, there are too many large markets packed closely together, creating inefficiencies. Many dealers operate multiple stalls across different markets, increasing costs and making it harder to survive during slow periods.
The impact of real estate regulation has been significant. A Beijing-based merchant shared that before the regulations, the housing supply was abundant, and business was booming. Now, however, the situation is much more uncertain. “We’re hoping to get through this tough time and see if things improve,†the merchant said. “If not, we might have to pull out.â€
Another factor affecting the industry is the growing trend of fully-fitted homes. In Guangzhou, 70% of new homes are now fully equipped, and other cities are following suit. This shift is reducing the demand for traditional building materials retail, forcing companies to rethink their strategies.
Qin Zhanxue believes that the key to future success lies in aligning with market demands while controlling production capacity. He warned against over-investment and suggested that smaller, localized stores may be more suitable for third-tier cities. “It’s wrong to assume that every city needs a big hypermarket,†he said. “Instead, we should focus on what local communities actually need.â€
He also emphasized the importance of product selection. As more homes are built with finishes already in place, specialized stores may become more relevant. “Customers don’t need to buy everything in one place anymore. They just want specific products they need to replace or upgrade,†he explained.
Zhang Yuxiang added that brand building is crucial during tough times. While many companies offer a wide range of products, most lack strong brand identity, leading to overproduction and inefficiency. He urged companies to focus on innovation and R&D to stay competitive.
Some companies are already adapting. Gao Qingpeng, manager of Shandong Jinjing Energy Saving Glass Co., Ltd., mentioned that due to rising competition and cost pressures, the company plans to narrow its product line and focus on high-value-added energy-saving glass. This move reflects a broader trend toward specialization and quality.
Finally, Zhang noted that e-commerce is still in its early stages for the building materials industry. While it offers potential, challenges such as product inspection, after-sales service, and legal frameworks remain unresolved. For now, physical stores still play a vital role in the industry’s evolution.