Profit dilution is the foundry of IKEA

When the interests between international giants and Chinese foundries are no longer unified, independent development has become the active choice of many foundries. “China’s OEMs for foreign brands are at a crossroads. The disparity in funding and strength between the two sides is destined to face the suppression of these retail giants.” On the afternoon of the 9th, the original meeting of the Jiayimei operation conference in Jinan Cao Yuewei, president of the IKEA Home Suppliers Alliance and chairman of the board of directors of Heilongjiang Endurance Wood Group, revealed to the Economic Reporter the road to transformation as a major foundry of IKEA.

“Either continue to bear the burden or bear the whole break.” On the 6th of this month, the founder of the Jiayimei home brand led his team (12 former IKEA foundries) to Alibaba Group and Tmall Mall. Cooperation agreement, holding the group to enter Tmall Mall.

Behind the “collective turnaround” of the IKEA foundry is the strong division of the industry's discourse power in the growth of Chinese OEMs. “In fact, many authorized companies do not understand the fact that the cost of production factors in China is rising, and they continue to reduce processing fees, forcing foundries to take the initiative to abandon the foundry business.” Zhou Dewen, vice president of the China Small and Medium Enterprises Association and president of the Wenzhou Small and Medium Enterprises Association, told The reporter reported that as the foundry approach began to shift to lower-cost Southeast Asia and other regions, the transformation has become a problem for current foundries, especially those with a high proportion of foundry business.

Profit dilution

Since 1997, the endurance wood industry has established a foundry relationship with IKEA. The wooden curtains produced accounted for 60% of the global production capacity of IKEA related products, and the annual IKEA OEM products amounted to 200 million yuan. However, since 2011, more than a dozen foundries represented by Endurance Wood have chosen to take the initiative to break with IKEA.

IKEA continues to drive down the purchase price, resulting in a decline in profits or even losses, which is the main reason why these foundry companies choose to stand on their own.

“According to IKEA's development plan, the average selling price of products needs to be reduced by 2%-3% per year. At the same time, the raw material costs and labor costs of foundry companies are rising.” As the “leading big brother” of IKEA business and industry, Cao Yuewei’s previous days Not good, "continuous losses for many years, the most loss of more than 10 million yuan a year."

Yantai Zhenhua Wood Industry Co., Ltd. is also one of the 12 companies that have “breakup” with IKEA. "How much is lost?" In the view of the company's general manager Yang Minghua, the gradual dilution of profits has made the good days of "backing up on foreign orders and enjoying the cool" is gone forever.

Yang Minghua told the reporter that they have been working with IKEA for nearly 20 years. At the most, companies will receive IKEA orders of $14 million a year. The cooperation between the world giants such as IKEA and the IKEA was a "beauty difference". However, IKEA repeatedly lowered the purchase price and made the foundry companies fall into an unprofitable situation.

According to Zhou Dewen, the pressure on foundry companies comes from the rise of various resource costs, and on the other hand from the authorized companies to reduce processing fees, lower purchase prices, and even terminate the contract with the foundry.

Unlike IKEA foundries, many brands of foundry companies are more passive. In April 2012, Adidas notified its 10 Chinese foundries that it would terminate the contract with these factories in October of that year.

"China's foundry is now at the end of the road." Zhou Dewen believes that the development of the foundry business alone is difficult to sustain.

"Jiayimei" mode

After leaving IKEA, the factory orders were not as good as before. In order to save themselves, in October 2011, Cao Yuewei and a group of IKEA foundries established Jiayimei Home Furnishing Company.

The growth of Jiayimei is similar to the transformation of many foundries. Imitate and learn IKEA in the early stage, and constantly innovate and launch products that are more suitable for China's national conditions.

"Simple imitation will not have a way out. We are not a replica of IKEA." To the outside world, Cao Yuewei said that although the founder of Jiayimei was born out of the IKEA supplier, and there is also the shadow of IKEA in the store layout and products, but Not a simple copy of IKEA.

For the emergence of Jiayimei, IKEA's response is relatively calm: "The Chinese home furnishing industry market is huge, and there is competition to develop."

For Jiayimei after “independence”, the brand has become one of the most important factors in the transformation of enterprises.

“The importance of the brand is well-known, but it is easy for a single company to cultivate its own brand independently. It is very difficult to do it.” For the brand building in the transformation process of foundry companies, Zhou Dewen said that it takes a lot of money and manpower to cultivate the brand. It is not easy to cultivate a company with great influence.

“The model of Jiayimei is worth learning. Several companies have 'developed a group' to jointly build a well-known brand.” Zhou Dewen said.

E-commerce helps transform

The orders that have been floating all over the place prove that "Cao Yuewei" turned around successfully. In a conversation with Cao Yuewei, who is over half a year old, the reporter pointed out that e-commerce is the word he frequently mentioned. In fact, this is also the key to Jiayi's rapid profitability.

At the seminar held by Alibaba Group on the 6th, Tmall Mall announced that it will provide 35 million yuan of advertising resources in April to support the rapid development of Jiayimei and other home brands.

According to the public data provided by Tmall Mall, Jiayimei opened its flagship store in Tmall Mall in late October 2012. In just 10 days, the sales exceeded 1 million yuan. On the day of “Double 11”, it was more than 2 million yuan. Sales.

“Through e-commerce, we can shorten the distance between consumers and factories, especially with the C2B customized form, which can not only be produced on a large scale, but also at a lower price.” In the cooperation with IKEA for many years, Cao Yuewei has extraordinarily fine cost control.

The gross profit margin of online shop opening is much higher than that of foundry. "Through the platform of Tmall and Taobao, the factory directly connects to the customer and gives the benefit to the consumer; for the manufacturer, a batch of orders in a short time can improve the production efficiency, which is the biggest contact with our e-commerce. Experience." Jia Yimei CEO Chen Yu accepted the reporter's interview and admitted.