Hanssem plans flagship as trust builds in China

From left to right, Hanssem’s upmarket flagship store in Centum City, Busan, and IKEA’s store in Beijing. [JoongAng Ilbo]

Hanssem plans to open a flagship store in China next year to expand its global presence in the face of a growing threat at home from Swedish rival IKEA, which is scheduled to launch its first store in Korea within two years.

The nation’s No.1 furniture maker said it will target Chinese consumers with high-quality furniture and interior services.

“Chinese construction companies have been building up their trust in Hanssem’s quality and installation capability due to our participation in numerous Chinese real estate development projects,” said Choi Yang-ha, the company’s chairman.

He said he is confident Hanssem can challenge IKEA for some of its share of the highly lucrative Chinese market.

IKEA, famous for its European home interior style and culture, runs 14 stores in Asia, mainly in China and Japan. It offers a wide range of affordable and ready-to-assemble home furnishings.

In fiscal year of 2011, it posted global sales of 25.2 billion euros ($33 billion), up 6.9 percent from 2010.

It has 1,018 suppliers in 53 countries.

IKEA said yesterday it will start selling Uppleva, an LED TV and sound system-integrated furniture unit, under a contract with Chinese electronics maker TCL.

While IKEA gains its competitive edge by pursuing low-cost strategies, Hanssem insists on quality and customized services, said an official at the company.

“IKEA products are affordable and their designs are outstanding, but they are far behind us in terms of quality,” the chairman said.

Hanssem has been preparing to expand globally since the 1980s.

It established branches in the U.S. in 1985, in Japan and China a decade later. Despite its relatively low recognition outside Korea, it has been striving to supply and install kitchen furniture sets in new apartments in these countries.

In China, Hanssem has been supplying kitchen furniture for new apartments under contract with local builders. As trust was built, the company inked a long-term contract with the largest local real estate developer China Vanke last year.

The China branch earned $15?million in 2011, more than double its $ 6 million from 2010.

Until now, Hanssem has been conducting business-to-business (B2B) projects in China, but it now wants to shift its focus to the local consumer market.

As IKEA has decided to enter the Korean market, Hanssem’s top priorities this year involve defending its domestic presence while also expanding its territory in the global market based on three key strategies: reducing production costs, providing interior consultation services, and increasing the number of its flagship stores.

But first and foremost, it plans to cut its production costs.

“We are trying to minimize margins and slash production costs by increasing sales volume of the so-called ‘super-seller’ products,” said an official at the company.

It launched a flagship store in Busan last November as a kind of testing ground before opening a similar one in China.

The Busan building resembles a department store, which the company believes gives it a competitive edge over IKEA’s warehouse-type store.

Inside, consumers can not only view and experience furniture products on display but also receive consultations from professional interior designers.

The store netted sales of 4.2 billion won ($ 3.7 million) in its first month but is targeting a monthly average of 5 billion won this year.

Meanwhile, IKEA established a subsidiary and bought some land in Korea last December, shaking up shares of local furniture firms.

Hanssem saw its share price plunge by 9.7 percent on Dec. 28 due to the news.

The first IKEA store will open in Gwangmyeong, Gyeonggi, in 2014.

“By increasing the number of our stores, we will get closer to consumers both in Korea and China, and provide them with professional interior services that will help them choose the right furniture products for their houses. This is very different from IKEA’s do-it-yourself strategy,” said a Hanssem official.

By Song Su-hyun [ssh@joongang.co.kr]